As you review your finances, you may come to find that you have many types of debt. Even if you have a plan in place for paying down your debt, you may have questions about which type to tackle first.
For example, if you have multiple credit cards and a personal loan, you need to decide which one to pay off first.
There is no right or wrong strategy, so you need to create a plan based on your financial situation and short- and long-term goals.
Here are some ideas to consider:
- Pay off high interest debt first: The reasoning behind this is that you eliminate the debt that costs you the most money. Once you have high interest debt off your plate, you won’t pay nearly as much in finance charges moving forward.
- Pay off smallest debts first: It feels good to pay off debts, as this gives you the momentum you need to continue forward. Furthermore, when you eliminate debts, you also free up more money every month for other expenses, such as to put toward additional debt.
- Focus on the order of importance: Although it’s important to pay all your debts, to avoid trouble with creditors, some are more important than others. For example, if you have received a notice of foreclosure, it’s imperative that you pay your mortgage in full and on time in the future. This may mean putting other debts on the backburner for the time being, such as medical bills.
Along with the above, once you have a plan that you trust, make sure you stick with it no matter what. It may not be easy at first, but as you gain momentum you’ll come to find that you’re slowly making progress toward your goal of becoming debt free.
If you have so much debt that you don’t know what to do next, you may want to learn more about bankruptcy. Chapter 7 or Chapter 13 could be the answer to many of your problems, as both of them allow you to quickly improve your financial situation.
It’s never easy to find yourself drowning in debt, but it’s good to know there is more than one solution to your problem.