Paying off your debts depends on a variety of factors, such as your income stability, the number of outstanding debts and their amounts, and your credit history. Some days, external factors such as economic conditions and interest rate changes can also impact your repayments.
Other days, you may find yourself backed into a corner when the debt starts to pile up and you lack the funds necessary to make the repayments. However, there are smarter alternatives to consider.
In this article, we’ll be explaining how you can create a structured plan to pay off your debts in the smoothest way possible and the variety of options that you can utilise for the same.
1. Payday Loan Alternatives
When you have a faulty credit history or low credit score, short-term options like payday loans may seem like a quick solution to your issues. However, they can trap you in a cycle of debt if you’re not mindful of its high interest rates.
Ideally, the best alternative to a payday loan is to avoid getting one entirely unless it’s an absolute necessity. However, if you do need to get one, consider the following options instead:
- Ask your employer for an advance on your wages that you’ll repay eventually. Through Jobcentre Plus, you can also pay the advances back through your benefits if you’re claiming any.
- Borrow from a close and trusted friend or family member to either avoid high interest rates or have no interest on the borrowed money entirely if you can reach such an agreement with them.
- Make use of the overdraft on your current account. Before doing so, just ensure that you check with your bank beforehand. Some banks even offer interest-free authorised overdrafts.
- Finally, some lenders offer special payday loan alternatives that are designed to offer you the immediate relief you need from financial emergencies while also offering fair and affordable loan terms.
2. Select a Debt Repayment Strategy
Based on your knowledge about your finances and interest rates for all your outstanding debt, choose a strategy to repay your loans that best aligns with your strengths.
For example, the debt snowball method involves prioritising your smallest debts first. Any extra amount that you might have goes toward the second-smallest debt, and so on. Paying off these small debts one at a time gives you motivation and frees up more funds for tackling larger debts in the future.
On the other hand, the debt avalanche method is an approach where you focus on the debts with the highest interest rates first. By paying off those debts, you minimise the overall interest you pay while freeing up money in the long run by avoiding even higher interest rates later.
Another strategy, known as debt consolidation, involves combining several small debts into one larger debt. This is usually done with the help of a debt consolidation loan or a balance transfer credit card. This way, the number of payments you have to make each month is reduced.
3. Automate Your Payments
When you have to face the burden of several loans at once, it’s not uncommon to be late for certain repayments. A quick solution to this would be to set up automatic payments to ensure that you never miss a due date, helping you avoid late fees and maintain a healthy credit score and history.
That being said, it’s equally important to make note of your balance when you set up these automated payments. Do this only when you’re confident that your bank balance is good enough to make the assigned repayments.
4. Avoid Getting New Debt
Do you know the feeling of having an already busy day at work and then getting more work dumped upon you halfway through the day? That’s kind of how it’d feel when you get additional debts when you’re already swamped with them.
You can prevent that from happening by simply being mindful of your spendings. Use your credit card responsibly, pay off balances in full each month, and build an emergency fund. Most importantly, don’t get overconfident after you’ve paid off your existing debt.
5. Create a Sinking Fund
Sinking funds consist of a fixed amount of money that you set aside regularly every month to cover a future expense that you’re already aware of. This may include insurance premiums, annual memberships, family vacations, or tuition fees.
Adding a sinking fund to your inventory can prevent you from sticky situations where you’re met with an expense but lack the necessary funds to pay it off. This way, your debt repayment plan remains on track.
To Sum Up
Everyone aspires to be debt-free as soon as possible, and when you have the correct approach and mindset to pay off your debts, the whole process can be made much simpler.
Take your time to research and learn about all the options available to you that best fit your financial situation. With patience and consistency, you’ll be able to achieve your financial goals while paying off your debts with as little hassle as possible.
