How To Pay Off Your Debt Early
Debt is something that a lot of people are scared of, and with good reason. Running up debts usually means that you’re spending more than you earn, and that can be stressful – perhaps you’ve lost some income, or you’ve been hit by some unexpected expenses because of ill health. A lot of people are anxious to get rid of their debts as soon as they can – they don’t want to end up with bailiffs knocking on the door and they don’t want to have to worry about getting a bad credit rating now and losing out in the future.
It’s important to understand that debt isn’t inherently bad – careful management of debt can actually be beneficial. There are five factors associated with credit scoring, and how you deal with your debts will make a big difference.
DO: Try to make revolving debt a priority. Credit card debt is high interest and can damage your credit rating if it runs up too high. This should be the first debt that you pay off. Don’t just make the minimum payment – because it will take years to pay off the debt, and you’ll end up owing at least 50% more than you took out – if not more!
Consumer debt is expensive, and it offers little in terms of return when you take it out – you’re just buying short term goods with it, most of the time. So pay it off on time and save yourself unnecessary expenses.
DON’T: Worry too much about installment accounts. Installment debt is debt that you pay off over a fixed period. Usually, you will have predictable payments, and they are a set amount each month – for something like a car or a large appliance. Yes, it can be stressful to have a long-term loan, but the interest on these is lower than the interest on a credit card, so you’ll be able to pay them off more easily. If you have other debts, then don’t worry about your installment accounts – pay off the ‘worse’ debts first.
DO: Look into Refinancing. Sometimes refinancing can save you money – it could improve your credit score, make your payments more manageable, and help you to save money in terms of interest payments too. If you’re thinking of doing this, then make sure you check that the rate you would be getting makes sense.
DON’T: Ignore investing. There’s an old saying; pay yourself first. It’s important to have an emergency fund and to build up savings. Make sure priority debts are paid, and that you stay up to date with your obligations, but do think about saving something for a rainy day as well.
DO: Get expert advice. The world of personal finance is confusing – a qualified financial advisor will be able to tell you more about what is necessary for your situation.