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When it comes to clearing debts, you need to remember the importance of interest rates and prioritising your bills. Read on to learn more.
If you feel like your debts are getting out of control, you might be looking for some tips on how to get back on top of the situation. If this is you, we’re going to take you through the best way to pay your debts off – as fast as possible and in the most economical way.
Pay back before you save
First of all, you should focus on paying your debts back before you try and build up your savings. It’s fine to have a little something tucked away for an emergency, but there’s no point in having too much stashed away in a savings account. This is because you’ll end up paying more in interest on your debts than you’ll earn on your savings, so you’ll end up worse off.
Which debt should I pay back first?
Try to pay the debt back which has the largest interest rate attached to it first. Make a list of all your debts, starting with the one that has the highest interest rate and then the next biggest one, and so on and so forth. Focus on paying the most expensive one off first by overpaying towards it if you can, whilst maintaining your minimum payments on your other debts.
This is probably the most efficient way to pay your debts off, as you will be getting rid of the most expensive debt on your list first – the one you don’t want to keep around for longer than necessary.
Some people recommend the ‘snowball’ method to pay off your debts. This is a similar method but involves paying off the smallest debt first. You maintain your minimum payments on all your other debts, whilst you overpay the smallest one. The theory is that overtime you will end up with more and more money to put towards the remaining debts on your list and pay them off faster. The downside of this route is that it is likely to cost you more if your bigger debts have higher interest rates.
Remember your other essential bills
Becoming debt free is a great target but you should always make sure you’re prioritising your mortgage or rent payments, any secured repayments (such as car finance), council tax, utility bills and other essential bills. The consequences of missing these payments are always going to be worse than falling behind with unsecured repayments, like credit cards and personal loans and store cards, so make sure there’s room in your budget for them.
So to summarise, it’s a good idea to put your savings towards your debts. Pay off the most expensive debt first, whilst keeping up with your minimum payments on the others. And don’t forget your other priority bills, whilst you do this.
I can’t make the minimum payment
Having problems making the minimum payments on your debts? Get expert help from our advisors today by using the options at the top of the page and find out about the debt solutions available.
While you’re looking at ways to tackle your debts, be sure to stay in contact with your lenders and let them know you intend to pay them back. This can go a long way in making sure they don’t take any further action against you.
by Christine WalshBack to blog home