Introduction Of The Best Strategy To Get Out Of Debt Faster And Paying Less Interest
The Best Strategy To Get Out Of Debt Faster And Paying Less Interest. We are going to divide the strategy into five important parts each of them has its own This is based on a strategy that we are going to call the debt payment acceleration strategy in other words, if we have several debts or even a single debt.
Need To Organize Our Finances
We are already paying the minimum payment monthly because obviously, we are going to delay whatever the established term stipulated by the bank if we want to get out of debt sooner then we will have to pay let’s say a little more than what the p At least this means that we then need to organize our finances and the first step is to know exactly with even pennies.
What the total amount owed is, we need to add all the debts, car credit cards, mortgages, personal loans, loans free investment any amount of debts you have no matter we are going to start by being aware of exactly how much that total amount is then we are going to make a classification of each of the debts according to their amount the balance to principal.
That we have in the instrument the interest rate The additional charges or fees that we have for example if we talk about a credit card can be handling fees or we can talk about life insurance or installment insurance or debtors that have some free investment credits even some credit cards we talk for example if we have mandatory car insurance.
Identify Your Surplus
In the vehicle credit and any other fee or charge that we have in any of these credits or loans that we have to pay, the idea is that we have as a list, then obviously if you have a single large debt or whatever, do not apply it from The list would only be one item, but for each one you have in mind, keep in mind exactly the interest rate, which is the most important.
The additional fees, how much is the minimum monthly payment and how much is the total amount owed, it may also be useful to know How many months will you have to pay that debt to pay it off completely if the minimum payment is paid now the second part is to identify your surplus, what do I mean by the surplus?
True and either income from your job or your business extra income things you are doing to generate this income then evident to me We all have expenses such as the expense of rent or precisely the price of the mortgage but we are not going to include among the expenses or costs to deduct from that income those.
We Can Dedicate Money To Pay The Debts
That are debts as such but for example, food, transport, education is applied for example of the children and everything that is simply mandatory and necessary monthly then we have an income and we have fixed costs from which we cannot deduct practically anything and we are going to be left with a surplus of this surplus is that we can dedicate money to pay the debts both to pay the minimum payments.
The minimum monthly balances that some of them have as well as to pay additional capital bonds to those debts the higher this surplus is, the more we will be able to accelerate our debt payment process, the faster we will be able to finish paying those debts and the only way or in the only two ways to increase this surplus is to Mining. You Can Also Read 5 Keys To Mastering Money And Preventing Money From Dominating You.
Our income either with additional income asking for an increase in work doing something in the business that brings us an additional source of income or trying to do something separately and also reducing our expenses now in reducing expenses the truth is that there is always a limit I can change the supermarket, buy cheaper products and practically ride a bicycle instead of the car and many things but there comes a point where I cannot reduce more here it is good to also consider some things that.
I will mention later so that this is a little more bearable but the fact is that we are going to identify a figure or an average monthly amount of what your surplus is supposed that you earn about two thousand dollars and have expenses of about 800 dollars per month then your surplus would be 1,200 dollars that you can dedicate and prioritize for your debts so.
A Debt Payment Acceleration Solution
The third part of this strategy includes choosing a one It forms a debt payment acceleration solution and the truth is that there have always traditionally been two ways to achieve it for people who have more than one debt and you can divide different debts, they have different conditions, rates, amounts, and others, one of them is the strategy of The avalanche that implies ordering the debts with the highest interest rate at the lowest interest rate, paying the minimum payment on all.
The debts except for the one plus the one with the highest interest and in that pay all the amount of money that remains after making the other payments according to your surplus, what does this mean that it is in the strategy that mathematically allows you to pay the debts in the shortest possible time paying the least amount of money in interest possible and there is no mathematical way to overcome.
This strategy because the other that exists the other strategy is called snowball and this implies that you are paying first the smallest debts suppose that you receive those 1,200 Let’s say a thousand dollars a month and one of the minimum payments of the 22 debts that you have for example is 400 dollars and the other is 100 but then it turns out that the debt that you pay 100 dollars a month is 500, you could theoretically pay that debt and eliminate it from your system practically immediately in the first month.
Whose Minimum Payment Is $400 Has A Higher Interest Rate
If you are going to dedicate this amount and only be paying the other, it turns out that if the other larger debt whose minimum payment is $ 400 has a higher interest rate at At the end of time, you will end up paying more interest in total if you pay off that small debt first because the money that you dedicate to debt is outside the minimum payment, that is, all that are extraordinary payments to the balance to capital outside the minimum payment they are better invested in debts of higher interest because.
The more time and the term of the doubt are reduced that is more expensive then because the truth is that the avalanche strategy is the most effective it is mathematically impossible to overcome it in any other way there is no way you can pay your debts faster and with less interest but the vast majority of people do not choose it and on the contrary, they tend to choose more one of the snowballs this is something irrational that is something that the truth is that it does not make any sense to do it.
If we think that we want to pay faster and with less interest if you ask anyone who is in debt if they would like to pay in more time and with more interest in less time and with less interest in the answer is obvious but the snowball strategy always leads you to overpay and take longer because people do it simply because they feel that they are making progress by closing small debts quickly getting like that little satisfaction of having canceled a debt each and then another debt here and again here is like in games when you start, see You will reach the first level in two minutes, the second level in six minutes, the third level in twenty minutes, and something when it goes to level 40, you are delayed, it may even take a month.
