Most people believe that there are many elements involved in a successful debt reduction plan. On the contrary, there are only 5 factors that would determine success or failure during your debt repayment strategy.
The Amount You Owe
In simple words, the higher the amount you owe, the longer it will take before you can pay it back. Assuming you have two credit card balances with the same interest rates and same monthly payments, the one with the higher balance will take a longer time for you to pay it off.
To get out of debt faster, make sure you create a payment strategy. If you’re comfortable with it, choose one debt and give it all you’ve got. Many experts snowball their debt and choose to pay off the smallest debts first before proceeding with the next larger ones. Whether it works for you or not depends on your preference and individual situation. Sometimes, it doesn’t matter which debt you decide to tackle first, what matters is that you get started.
Your Interest Rate
Basically, the higher the interest rate, the longer it could take to pay it off, because most of your monthly payment actually goes to interest payment rather than principal. This is why many experts view that the correct method of debt repayment is prioritizing those debts with the highest interest, so as to get them out of the way more quickly and stop the interests from rolling over. If there’s a way to lower the interest rate, like transferring a high-interest credit card balance to a lower-interest credit card, use this method if you’re having difficulty putting in a huge chunk of your monthly income towards debt repayment.
Your Monthly Payments
Of course, this one dictates how quickly you can get rid of your debt. The more you pay, the more your balances drop. If you’re paying only the minimum amount on your balances, you are just prolonging your agony. Only pay for the minimum if it’s called for in executing a debt repayment strategy, such as during snowballing your debt.
If You’re Adding New Debt
The number one rule during debt repayment is to stop adding any more debt if you want your debt to disappear for good. It would be useless to try paying for your debts if you’re creating new ones. Make sure that you always pay on time to avoid generating fees.
Your Adherence to the Plan
There are different known tactics in paying off debt, however the strategy you choose is not the key to successful debt payment, but rather, it is how well you stick to your plan of choice that matters. Whether you decide to pay off small balances first or the highest-interest rates first, your overall success will depend on your execution. By keeping up with your planned payment allocations, making payments on time, refusing to add any more debts, and committing to a long-term goal, you can ensure that you will be able to climb your way out of debt sooner.