We’d all like to be able to repay our debts a little faster, but the reality is that most of us don’t really give a lot of thought to this. Most people will only ever repay their debts as their terms dictate, failing to realise that a few overpayments could reduce the overall amount they have to pay.
But if you do want to repay your debts more quickly, then using additional cash to ‘overpay’ on your debts can be a good idea. Here are a few tips for clearing your debts faster.
Repaying debts in the right order
The key to reducing the total amount you pay – and therefore how fast you can repay your debts – is repaying them in the right order. More specifically, this means repaying the debts with the highest interest rate first, and gradually working your way down to the debt with the lowest rate.
This doesn’t mean only repaying the debt with the highest rate – you will obviously have to make at least the minimum repayments on all of your debts. But any excess income should go towards overpaying on the debt with the highest rate (usually online payday loans) , as far as your repayment terms will allow.
The maths behind this are quite simple: repaying high-interest debts faster means they take less time to repay, meaning you’ll be charged a high rate for a shorter period.
Some people feel that this method of repaying debt can be discouraging because it could take longer to clear the first debt in full than if you started with smaller debts, but it is certainly the cheapest way of repaying what you owe.
Note: if you’re a credit card borrower, your provider is now required to repay your debts in this order. More details on this can be found at http://www.uswitch.com/credit-cards/order-of-payment/.
Increasing you amount you can pay each month
If you really want to speed up the amount of time it takes to repay what you owe, then you may find that a few improvements to the way you manage your finances can free up extra cash.
A few ideas might include putting together a strict budget to give your finances a bit more structure (reducing unnecessary spending), or generally cutting back on a few things you don’t need. Both these things could raise additional cash for overpayments towards your debts.
You can find more tips on ways to beat debt at http://www.debtadvisorycentre.ie