A well executed debt management plan, coupled with commitment to a cash only policy, can slowly but surely get you debt-free and train you to live within your means. Most people can accomplish this relatively easy without any outside help – provided they don’t accumulate any more debt. Consider the pros and cons of the following four strategies to pay off your balances.
Start With The Balance Closest to Its Limit
Maxed out balances give lenders just cause to raise rates and they’re doing it right and left these days. Paying down high balance debts can help your credit score and ultimately decrease your overall interest costs.
Start With The Smallest Balance
This strategy is the fastest way to zero out one of your credit card balances. Some people need to see quick results to keep motivated. However, if you neglect other higher interest debts in favor of this strategy, the short-term incentive can cost you in higher overall interest paid.
First Start With The Highest Balance
This strategy is often the most recommended, even though it takes a long time to get your first balance paid off. It also doesn’t impact your credit score immediately. But, the motivational benefits of seeing your largest balance paid off are huge and a great motivator.
A Mixed Strategy
For most people the best option often ends up being a hybrid of the three previous approaches. One option would be to pay down the balance that’s closest to being maxed out first, then paying off the highest interest rate balance next.
No matter what strategy you choose, focus on paying off your targeted debt off first and just pay the minimum on the rest. Methodically working your way through the priorities you identified in your plan will eventually get you completely debt-free. Just keep your focus and commitment – and don’t acquire any more debt.
This whole process can be made even easier if you opt into an automatic payment plan that automatically pays a set amount on your account each month. If you are like the vast majority of people trying to keep up with their busy lives, this can really simplify the process and eliminate any temptations to deviate from your plan.
Finally, unless you absolutely cannot control your spending, don’t close your accounts or lower your credit limits once you have paid them off. Closing accounts or lowering limits will have a negative effect on your credit score. Just enjoy your new debt-free status.
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