- Date : 09/08/2021
- Read: 4 mins
You need to pay off your toxic debt. Here’s a plan with 6 smart strategies to prioritise your debt repayment before it gets out of control and starts affecting your emotional and physical health.
Are you asking yourself the question – how will I prioritise my finances to meet my debt reduction goals? Then you are probably facing the debt-stress syndrome. Here’s what you can do. The important part is to make a decision that you’re ready to be debt-free, to make a reasonable plan, and stick to it.
If you find yourself in a revolving door debt, beware. Basically, if a loan has high interest rate, it can be toxic to your financial life. A simple rule about debt is that if it increases your net worth or has future value, it is good debt. If it doesn’t and you don’t have cash to pay for it, it is toxic debt.
Revolving debt, typically with high interest, is toxic, and has the capability to quickly spiral out of control. When you think of paying debt, concentrate on paying off the toxic debt first. Make a clear plan of attack to free up extra cash for digging into your current debt. This will also set you up for addressing the issues that caught you up in the cycle.
Although it might feel overwhelming, you can tackle your debt taking one step at a time. Here are six smart strategies to start with. Make a list of all your balances and their corresponding interest rates. On making your monthly payments, pay anything extra that you can to these top ‘offenders’, until you become debt free.
Related: Good debt vs bad debt: What you need to know?
So here are six smart strategies – the best form of action against your debt.
1. Explore the debt avalanche
Debt avalanche is the practice of ranking debts by interest rate and paying each off by starting with the one carrying the highest interest. Follow this with the next highest, and continue to make payments until you are debt-free. This way, you attack the most toxic part of your debt first.
2. See where you stand
Make a monthly budget using your smartphone. Carefully track your money to get a clear picture on where you are habitually spending too much. This will help you avoid those expenses and utilise the funds in paying off your debts faster. Make a new budget to keep your spending on track and to avoid spending on things that you can’t afford right now.
3. Embrace lifestyle changes
Get serious about creating a new debt-free lifestyle. Start by avoiding wasteful shopping or wanton splurging. This will be a lifestyle that you can comfortably manage without having to reach for a credit card.
4. Cut down spending and increase your income
Get creative in cutting down your spending. The faster you can do this, the sooner you can get your finances back to good health. Alongside, also think of ways to increase your discretionary income to get more money to put towards paying your debts right now – and save for cool things and fun experiences instead of charging them on credit.
Related: Debt payment strategies every woman should know about
5. Consolidate your debt
You can try getting a balance transfer card that offers 0% introductory interest rate lasting 12-18 months. This can help you transfer your balances from your high-interest credit cards to one of these cards, and then diligently pay the new balance off before the introductory rate expires.
6. Smart an emergency fund
Surprise expenses are the key reason why most people get caught in toxic debt. To keep your finances healthy, start saving for emergency expenses. This way, you are less likely to rely on credit to get by these expenses.
Take a look at this solid six month's plan that will help you come out of debt trap in a very structured and disciplined manner - Tomorrow Makers' Guide To Becoming Debt-Free in 6 Months.