Prioritise Your Repayments
One of the best ways to speed up the repayment of your debts is
to focus your attention on paying off the loans that carry the
highest rate of interest first. Get rid of the debts that cost
you most to service.
Here's what to do. Compare the interest rate on each of your
loans and repay those with the highest rate first. The only way
to do this is to look at the rate of APR on each of your debts.
That's the only way to decide which debt is more expensive. If
you're unsure, check your loan agreement or ask the lender.
Then, it's just a case of throwing everything you can at the
debt with the highest APR (provided you can still make the
minimum payments on your other debts).
Then move on to the next most expensive debt, and wipe it out.
Then focus on the next most expensive, and the next, and the
next, until you're entirely debt free!
This means that you should normally aim to pay them off in the
following order.
- Store cards, catalogue accounts and other hire
purchase agreements
- Overdrafts
- Credit cards
- Personal loans/Car loan
- Mortgages and other secured borrowing
Get The Best Deal
Get the best loan deals that are available to minimise the
interest that you pay.
Fact: It's much easier to repay a loan with an interest
rate of 5.9% APR than one set at 29.9% APR.
The less interest that you have to pay, the more you'll have
left to repay the amount originally borrowed.
Transfer each of your debts to as low a rate of interest as you
can find. Transfer debts on your credit cards to a lower rate
card. You might be able to find a card that gives zero percent
interest on all balance transfers for 6 months. Likewise, why
continue to pay 30% APR on your storecard debts, when you could
transfer the balance to a credit card that charges a much lower
rate.
But if you decide to do that, I've got two warnings for you.
When you transfer debts from one of your plastic cards,
destroy the old card immediately!
Avoid the urge to keep them, or before you know it both cards
will be up to their limit, and you'll be looking for an even
lower rate just to keep up with the repayments.
And second, don't waste these interest free periods. Just
because you don't have to pay interest for a while, don't ease
up on your efforts. Keep paying as much as you can to reduce the
size of the debt.
Interest free periods are a golden opportunity to substantially
reduce your debts. Don't look on them as a 'payment holiday', or
as an excuse to increase your spending.