The 5 Best Ways to Repay Debts in 2023
Repaying debts does tend to be an arduous task, especially when you have meager disposable cash. It becomes even more difficult when you don’t have a well-defined strategy to do this. We have listed some of the ways in which you can repay your debts below. Using any or all of these tips will help you make specific financial changes. However, you can stick with what works best for you based on this list.
1. Craft a Plan
The first step to repaying your debt should be creating a plan. Without having a well-defined plan, you might find it challenging to repay any of the debt that you have. As humans, we require money to run most of our day-to-day activities.
A plan will help you prioritize your accounts. Whatever your situation is whether you have enough to start paying off right away, or you don’t have enough to do so crafting a plan will allow you to set money aside, reduce your spendings, save more, and make a budget that works for you.
Make a list of all your debts together with the balances and interest rates. Determine the ones to pay first based on priority, urgency, and interest rates. Those with higher interest rates can be at the top, while those with lower interest rates can be further down on the list. You can also use the ‘lowest to highest balance’ or ‘highest to lowest balance’ method.
2. Budget for Debt Repayment
When you rely on your memory only for loan repayment, you may make mistakes or be incapable of managing them properly. However, when you create a budget in written form, you set aside the proportion of monthly income to repay your loan.
A budget allows you to make changes and better decisions. Preparing a budget that explains your recurring monthly expenses will help you know if there is a need to reduce the amount you spend on some and if there is a need to exclude those that may be unnecessary.
There are various ways to create a budget. You can use a budgeting guide or a budgeting plan like the 50/30/20 rule. With this rule, you allocate 50% of your income to essentials such as food, rent, debts, and bills. 30% is for non-essential expenditures, such as clothes, entertainment, frivolities, and holidays; the remaining 20% is saved for a future time of need during any financial emergency.
3. Avoid Creating Debt
If you are determined to repay your debts, you need to stop creating even more debt to prevent bad credit loans. When you look out for more loans, you strain your income, which affects your ability to repay the previous ones.
When you buy products you don’t need or live a lifestyle that’s above your income, you create even more debt for yourself. By doing this, it becomes hard to get out of debt. Reduce the urge to apply for more loans if you can’t pay them off without inconveniencing yourself.
4. Put Money Aside
It is crucial to put money aside on a regular basis to apply to your debts. Setting money aside for essential and non-essential expenses helps when it comes to making a proper financial plan towards paying off your debt.
Impulsive buying occurs when we make purchases based on our impulses. This happens when we don’t consider other essential expenses we need to buy. It would help if you always prioritized your essential finances to be sure of being financially buoyant. Please read our guide on 5 simple ways to save money.
5. Reduce Your Expenditure
Overspending is known to increase your overall expenses. It is challenging to save towards paying off your debt when you have a higher expenditure. This is more challenging for impulsive buyers and for those who find it hard to manage their income. Financial experts recommend keeping expenses below the amount of your income.
For instance, you can cut your monthly recurrent expenditure on entertainment, limit the amount you spend on clothes, prepare your food in the house, and eliminate unnecessary spending. Understanding what you want and what you need is vital. The things you want that are not urgent can be delayed until the time when you are out of debt.
George Ashley is an expert writer and independent financial advisor. He helps clients with a variety of personal financial planning and investment needs.