The first step is to check how much debt you have, and what sort it is. The high-interest debt costing you the most is the priority, not the no- or low-interest stuff. Loans that don’t charge high interest or fees are okay for now you should consider as a lower priority. It is s the high-interest debt that hurts most: credit cards, personal loans. This is the debt that you should pay off at the first instance.
If you have a number of loans to repay, it works best if you focus on repaying a single debt. Keeping the rest at the minimum payment, aim all your extra money to get rid of one at a time – the one with the highest interest payment.
Below find a description of two debt repayment strategies. ĠEMMA’s advise in so far that it is possible is that you adopt the Avalanche debt repayment strategy.
The quickest way out of debt is often called an avalanche: taking down the debts in order of how much it is costing you. Start with the one that hurts most: the one with the highest interest rate and fees. Then take your repayments (and any extra money you can find) and aim them at the next-highest-interest debt, and keep going. Pay off and repeat until you have knocked them off and they all come down in an avalanche.
Paying off the debt that costs you most is the quickest and cheapest way out of debt.
Taking on a large debt first requires commitment. You want to make sure you make it all the way to being debt-free.
Paying off your smallest debts first can really get you going. This is called a debt snowball, and it can be truly useful if you need quick feedback that you are making inroads in your debt. Pay off the smallest loan. Then take your repayments (and any extra money) and aim them at the next-smallest debt, and keep going. You gain momentum, pick up speed like a snowball, get all the motivation you need to see it through.
Ticking off the tiny ones first gives you momentum, motivation. Progress is visible.
This is not the quickest or cheapest way out of debt, but it may give you the necessary confidence to see through your debt re-payment strategy.