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If you have made a goal to pay off your loans and become debt free this year, you are on your way to financial freedom from monthly payments and interest rates. Paying off your debts requires a little bit of financial frugality and discipline for a while, but the pleasure of being able to say that you no longer owe that credit card bill, homeowner loan or secured loan will be worth it. Remember that the longer you take to pay off your loans, the more money that you will end up paying in the long run with interest and fees.
When you are paying off all of your loans, what sort of advice should you keep in mind in order to make the process go as smoothly as possible? Here are some dos and don’ts that you can remember for the debt repayment process:
- Don’t be in denial. Yes, it might be overwhelming to tally up all of your debts and realise how much you actually owe, but until you do this it will be impossible to actually make a plan to pay off your debts. Sit down and make a clear financial picture of what you are up against so that you can make a plan.
- Do pay more than the minimum on your debts. The minimum payment usually barely covers the interest and only incrementally decreases the balance on the principal. The more you can afford to pay on your monthly payments the quicker you will reduce the debt and the more interest you will save.
- Don’t keep spending at the same rate! This is like trying to empty out a sinking boat without plugging the leak first! Put away your credit cards and hold off on making any unnecessary purchases until you have gotten your debt paid off or you will just create more debt.
- Do make a frugal budget and look for ways that you can enjoy yourself for free or very cheap. Instead of going out for dinner and a movie with your friends, invite them over for a home-cooked meal and a DVD instead. Have a clothing swap with your friends to refresh your wardrobe rather than spending a lot of money on new clothes.
- Don’t miss a debt payment. Not only will you incur late fees, you will also have a negative mark on your credit score. If you have no choice but to be late for a debt payment, contact the credit as soon as possible and do whatever you can to negotiate an extension.
- Do organise your debts by priority. If your loans are secured against something you own, such as a mortgage or a hire purchase on a vehicle those should be considered priority debts because if you don’t pay them then your car or your house can be taken away. Other priority payments include your council tax and your utilities. Pay off the high priority debts first and then work your way to the lower priority ones.
- Don’t be afraid to seek out help. Paying off debt can be challenging and it requires a lot of planning, organisation and money management. Speaking to a financial advisor, debt counsellor or a friend who has been there before can really help you stay motivated and learn some techniques for paying off your loans.
These are just a few tips to keep in mind when you are paying off your debts. If you can follow this advice you will find that the process of paying off your loans becomes a lot easier and more manageable.
Great post! I am really working on being debt-free this year and I am on my way. I don't have much debt actually, so I believe I'll be able to achieve financial freedom in the middle of the year.