The ongoing Covid-19 pandemic has affected many lives globally. Jobs were lost, income opportunities dwindled (if not lost), and personal finances were disrupted. But as the new normal emerges, people are starting to pick up the pieces again and somehow return to how things were.
If you have incurred debts—great and small—during the duration of the ongoing situation, you are not alone. Moreover, it is time to align your finances and begin taking control of the situation once again. This is not the time to dwell on the setbacks but instead, a time to take on promising opportunities, take control of your current personal finance, and aim for financial freedom anew.
Getting rid of all your debts may be challenging, but it need not be a stressful task. Having a debt-free life may not happen overnight, but if you would start getting to the path today, it may not take much longer. Here are three strategic ways to strengthen your finances when dealing with your incurred debts in the new normal:
1. Pay off debts from the smallest to the biggest.
You can build an effective momentum when repaying creditors by listing down all your debts and looking at their scale. One proven-effective strategy is to prioritize paying off smaller debts first while not completely disregarding the bigger ones. This is the ‘debt snowball’ approach.
This works by making bigger payments to settle smaller debts and at the same time paying minimum payments required to service other payables. It puts an end to the minor responsibilities first so you can eventually focus on the bigger and major ones. The debt snowball approach is for you if you prefer to lessen the number/volume of debts you are servicing in the quickest possible time.
2. Pay off debts with higher interest rates first.
Another effective strategy is to start settling debts with higher interest rates first. Through this approach, you can minimize the huge interest payments required so you can concentrate on those with smaller interest rates eventually. By cutting back on cash you have to pay for interest, you can somehow free up some amount to gradually settle the other debts. You may be surprised how much savings you can generate from doing so.
Also commonly referred to as the ‘debt avalanche’ approach, this strategy is best if you are always getting anxious about the amount you pay for interest on your loans/debts.
3. Consolidate all your debts.
The best approach when dealing with numerous loans/debts at the same time is debt consolidation. When you list down all your existing debts, you would surely realize that you are dealing with numerous creditors. It is easy to realize that repaying numerous debts will somehow bring about inconveniences and pose risks of possibly overlooking to repay some of those on due dates. You know what happens when you default on repaying a loan—it accumulates more costs through penalties and late payment charges.
Consolidating all your debts into one works as you are minimizing the possibility of having to meet defaults or of being confused on due dates and minimum payments required. In this approach, a debt consolidation lender pays off all the other existing debts and in the process, you would be left to deal with just a single creditor with just one interest rate and a single monthly due date for payment.
At the same time, paying numerous debts all at the same time could bring about positive scores on your credit rating. In the long run, this in turn would qualify you to lower interest rates and more competitive terms if you need to get a new loan in the future. Debt consolidation will also work best if you could commit to not getting more debts or using your credit cards while you are still working to pay off how much you presently owe.
You can check out debt consolidation options through this link.
It is high time to develop your own debt management plan today so you can emerge from the situation and enjoy the financial freedom you have always aspired for. Click this link to know more about debt repayment options or to seek guidance about personal finance or debt management now.
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