All debts are not equal. They are equal in the fact that each one of them is lethal if unmanaged. However, they can harm you in different ways. It is not uncommon to see two people with the exact same debt pay very different amounts in interest over the lifetime of the debt. Hence prioritization is important. It needs careful thinking to figure the best way out. Once you are in the debt trap.
Interest: The first thing to do when you have multiple debts is to ensure that you list them by interest rate. The one with the highest interest rates should be at the top. Next thing to consider is tenure. For instance you could be paying a 17% per annum interest on a credit card purchase. However, if the interest amount is only $200 and you have bigger problems like a $1000 interest on your car loan, then the car loan should be the obvious priority!
Fees: Creditors realize that many customers view interest rates only before they take a loan. Hence to make the interest rate appear lower, they disguise the costs in the form of fees and charges. Ensure that you have a good look at the fees.
Lowest Overall Amount: Lastly, you must pay off one debt at a time. This means paying minimum amount due on all other debts, while you finish the one which has the most interest amount and fees attached to it. This can reduce the total amount paid and time taken by as much as 10%-15%. However, there are numerous permutations and combinations that are possible when you have multiple debts.
Taking the help of a professional might be a good idea.
It is better to find out the best way to pay off your debt. Panicking or blindly making fixed monthly payments may not be the best option.…