For some people, money is the root of all evil. For others, it’s the key to many beautiful things. But in reality, money has very little to do with either. Instead, it’s how you prioritize your debt that will determine your future. There are a lot of methods to pay off your debts, but depending on what debts you have, prioritizing them in order from the most important to the least important could be the best way to go. This is no different than any other problem you may face in life: the one that seems most important should take priority over the others. So here are some tips on How To Prioritize Your Debts.
- Pay the debt with an interest rate
Most people are wise to the insidious nature of credit card debt—the combination of interest rates, fees, and penalties can quickly become the bane of your existence and drain your bank account. But, few people know that there is a way to reduce or even eliminate the interest on your debts. Before you start spending money on debt, you should think about the interest rate it will cost you in the long run. The interest rate is the amount that you would pay per year on your debt. When you borrow money, you should ask yourself how long you plan to keep it. If you think you will have your debt for a long time, it’s best to pay off the debt as soon as possible, so you don’t have to pay any interest.
- Pay the debt with a balance
You know that money debt is a problem because you can see it: it accumulates on your credit cards, your mortgage, or your student loans. But do you know what it’s doing to your life? A staggering 1 in 5 households has $10,000 or more in debt. While many of us know that our debts are a problem, we don’t always know how to tackle them or what to do with them. It’s no secret that many people struggle with their debts. It’s estimated that more than 80% of Americans carry credit card debt, and more than 20% carry a large number of student loans.
- Put together a budget
We’ve been talking about budgets lately, but financial planning and management are important in living. Even if you’re on a fixed income, you’ll still need to pay for basic bills and expenses, from the mortgage on the house to an insurance policy on the car, and the student loan on your credit card will never stop accruing interest. So, how do you prioritize your debts and stick to a budget?
Paying down debt one at a time is an important step toward financial security. But the process of paying down debt doesn’t have to be overwhelming. It’s a good idea to budget for your finances, but it’s equally important to recognize when you’re going to have to make a payment. Living prudently means you may have to give up something you enjoy or even move out of your home if you can’t afford it. Also, remember that the more debts you have, the harder it will be to reach your financial goals.
With all the distractions that we have today, it’s easy to spend less time on important things. For this reason, it’s important to prioritize all your debts so that you can keep them in an orderly fashion for maximum repayment. Given that you have money owed to multiple creditors, it’s a good idea to divide them up into categories and pay them in order.
Sometimes we get so caught up in our everyday lives that we forget to perform the most important task to us. For example, I’ve been studying abroad for a few months now. During this time, I’ve been neglecting my loans and trying to figure out what I want to do for my future. I’ve learned that if you are living a comfortable lifestyle, it can be easy to procrastinate on something unimportant. Yet, if you continue to push yourself and stay motivated, you will eventually reach your goals, whether it be a promotion at work, raising your family, or saving your money to buy a new car.