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Borrowing money is a common process for all of us, and a highly stressful one to boot. Whether buying a home or indulging in a pre-payday shopping spree, debt is eminently accessible – and can very quickly come to be a burden. Ten million of us are heavily in debt in the UK, between energy bill arrears, credit cards and payday loans. If you are one of those ten million, what can you do to make paying down your debt an easier process?
How to Pay Off Debts?
Identify Priority Debts
A healthy and helpful first step when addressing your debt burden is to understand its constituent parts – and to identify the specific debts that should be prioritised over others. Not all debts are made equal; different loan agreements might have different repayment terms or rates of interest, resulting in variable levels of volatility or overall cost.
As an example, a payday loan would incur a high rate of interest, and high penalties after a relatively short period of non-payment. Conversely, a long-term secured loan from a major bank might have a favourable interest rate with an interest-free period, and a generous repayment schedule written in. Of these, the payday loan would be the priority focus.
Even with a priority focus, it can feel overwhelming to consider and manage the totality of your debt burden. With different loans at different rates of interest, juggling repayments can even feel future. For this reason, one of the most empowering and effective ways you can control your debt is through consolidation.
Debt consolidation loans are used to combine multiple debts under one ‘roof’; a single loan is used to pay off all extant loans, freeing you from late fees and differing interest rates. Through this method, all debts are rolled up into a single monthly payment, and a single rate of interest that sits below your cumulative prior interest. Repayment becomes, quite simply, simpler.
Budgeting for Repayments
Even with consolidating all loans into one place, repayment can be a difficult task. The task can be made much easier with a simple understanding, though: until the loan is repaid in full, saving money makes little sense. This is because interest accrued on savings will be immediately more-than negated by the interest on the debt. As such, any and all additional funds, beyond necessary expenditures and a pre-set leisure budget, should be directed towards cutting down your debt.
Eventually, your debt amount will be reduced to zero and you will be free of your debt burden. From here, it can be helpful to set some ground rules going forward. What are some healthy spending habits you can inculcate? Are there any erroneous expenditures you can continue to monitor and cut? Saving is now your new priority, with an emergency fund helping you remain out of debt even in the event of a costly surprise.