Ready to pay off your debt? The first step is to create a payment plan.
If you only have one debt, your strategy is simple: make the biggest monthly debt payment you can handle. But if you’re like most people in debt, you have multiple accounts to manage. In that situation, you need to find a debt reduction method that works best for you.
Here are a couple of highly publicised tried and tested methods:
The Snowball Method
The debt snowball method was originally made popular by personal finance expert Dave Ramsey. This debt-repayment method focuses on paying off your smallest debt balance first while making minimum payments on all other debts eg. credit cards.
Once a balance is paid off, you take the funds you had previously allocated to your smallest debt and put them toward the next-smallest balance, essentially building, or “snowballing,” your repayment toward the next balance. This cycle repeats until all of your debt is repaid. It’s a great motivator to keep going as each balance cleared is a win!
Pay off debt with your savings…
If you had: £1,000 debt on a credit card at 18%, the interest cost is £180. £1,000 saved in a savings account at 1%, the interest earned is £10. Pay off the debt with the savings and you are £170 a year better off!
(Example by Martin Lewis founder of Money Saving Expert on 29.09.2020)
When searching for advice on the internet you’ll notice there are several methods out there, and this can be very confusing! Why not speak to someone who can advise the best or most effective method for you? Or go to the Government website for advice: Options for paying off your debts!