The 2020 COVID-19 pandemic significantly disrupted people’s professional, social, and economic lives. Many people incurred huge debts, from credit cards, mortgages, auto loans, and student loans, due to unemployment, job loss, and other financial problems. Consumers have started repaying their debts with the economy recovering to reduce their debt burden. Use the tips below to identify the loans to pay off first to avoid debt bondage and attain financial security.
Consolidate Debt
When you have many debts, you can merge them into a single account with one payment. This way, you avoid the hassle of keeping up with different premiums and due dates. According to Priority Plus Financial, personal loans can reduce debt by offering one easy payment and lower interest. When using a personal loan to consolidate debt, you direct the proceeds to clear individual debts and service only one loan.
Debt consolidation is good because you leverage lower interest and save money by evading missed and late payment penalties. You shift your focus to a single debt rather than managing multiple debts with different repayment amounts and interests. Additionally, consolidating your debt streamlines your finances, improves your credit score, and relieves stress associated with various payments.
Start With the Smallest Debt
Whether you get into debt due to unemployment or excessive spending, you can become debt-free by starting with the smallest loan amount, leveraging the debt snowball method. Start by outlining all your debts and then clear the smallest amount as you head to the largest. This does not mean neglecting big debts; you pay the minimum for all debts but pay more for the smallest till you clear it.
As you clear the small debts, you have more money for the big ones. The best thing about this repayment approach is that you attain small triumphs, building motivation for bigger loans. Also, you learn money management skills as you see the debt pile reduced. Getting out of debt can be daunting and stressful, but the approach makes the process easier by allowing you to focus on one debt at a time. You can also reduce the amount of interest you have to pay by tackling the debts with the highest interest rates first.
Getting out of debt can be daunting and stressful, but the approach makes the process easier by allowing you to focus on one debt at a time. You can also reduce the amount of interest you have to pay by tackling the debts with the highest interest rates first.
Prioritize Expensive Debt
The Debt avalanche method focuses on debts with the highest interest rates, thus, the most expensive. You list your debts from the ones attracting the highest interest rate to the lowest. Then, clear the highest-interest balance as fast as possible while paying the minimum for the other debts.
This strategy appeals to many people because it saves money on interest. Since you prioritize high-interest debts, you eliminate the most costly debts fast. It is an excellent strategy for people with expensive debt like credit card debt. You get a feeling of accomplishment and control after clearing a high-interest loan.
If you are wondering which loans to pay off first in the post-pandemic period, you have numerous options depending on your needs. You can merge your debt into a single loan with one payment rather than have several debts to service. Alternatively, you can start with the debt with the smallest balance or largest interest and say goodbye to the debt. Whichever debt you prioritize, commitment and consistency are vital. Do not forget to celebrate every extra payment you make and each debt cleared!
