Effective Debt Payment Strategies For The Year

Effective Debt Payment Strategies For The YearAs the new year dawns on us, one of the best ways to manage your finances is to look at effective debt payment strategies. You can simply choose to keep on paying the minimum on your financial obligations and that is fine. At the very least, it will keep you current. However, if you want to have better control over your finances, you need to re-think that strategy.

For one, you would end up paying a considerable sum on interest alone. Minimum payments tend to have interest fees tucked in on the amount. You also have to look at penalties and other related fees if you do not pay amounts in full. Overall, minimum payments can be easy in the pocket but can cost you a lot over time because of interest and fees.

One positive thing you have going is that your payment gets reported in your credit score. That is if you are making on-time payments. Late minimum payments will not only stain your credit report, it can also lead to a lot more penalties and fees than what you are dealing with at present. As a result, you pay more and your score dips.

These are just some of the reasons why you might want to look into effective debt payment strategies to manage your finances. It would be a great start for the year as you use strategies that can get you out of debt faster. The sooner you can do that, the more funds you can put into your future financial needs. That being said, here are a few things to go over to help you identify an effective strategy for debt payment.

Audit your debt obligations

On top of your list should always be an audit of your debt obligations. It is an important first step so you know what you are facing. This step is easy and straightforward because you just list down all your debt payments. From your mortgage loan to car loan, student loans, as well as your credit card payments. You need to be able to list all of them down.

The challenge starts when you are in debt denial with some of your financial obligations. It can be that one credit card that has already been maxed out. It might also be a payday loan you are trying to avoid. As you list down all your debt obligations, you need to be very honest with yourself and be truthful on what you put on the list. Only then will you be able to see the whole picture and look at effective debt payment strategies.

Tackle high-interest debt payments first

One effective strategy to pay off debt is focusing on the accounts with the highest interest rate. Sometimes referred to as the “Avalanche” or “Debt Stacking” method, this helps you save on interest payment down the road. This usually comes out to be your credit cards or other unsecured loans that you have taken out.


Take note that you still need to keep paying all your other debt obligations. You can put in a minimum amount on all while putting a little extra to that one payment with the highest interest rate. Once you have paid off one, you set your sights on the next highest rate and then the next one until you have paid off all your debt obligations.

Prioritize paying off smaller debt amount

When you start talking about effective debt payment strategies, you can also consider the “Snowball” approach which can fast track debt payments. Much like debt stacking, the priority this time are the ones with lowest total amount regardless of interest rate. As you finish one account, you simply add what you were paying for it to the second smallest payment. As you do this, you get to pay off your obligations one after the other.

What this debt payment strategy gives you are small mental wins that you can take to the next one. There is a certain feeling of accomplishment when you pay off any type of debt. It gets you excited to pay off the next one and the one after that. Soon you would have paid everything because you were getting those small wins at the beginning.

Debt consolidation

With the two options above, you still have to keep an eye out for each and every one of your debt accounts. Missing one could lead to bigger debt payments at the end of the month. If you have the ability to meet your payments but you are just struggling with keeping up with the payment schedule, you need to consider consolidating your debt.

This is one of the effective debt payment strategies that a lot of people have been using. As the name suggests, this will entail combining most, if not all of your debt obligations under one account. If you have five different credit cards with various lenders, you are juggling multiple payment details. From the due date to the payment amount and even interest rate.

Once you combine your debts into one account, you will only have to manage a few payment details. As you do that, you lessen the chances of missing a payment. In the process, you reduce the possibility of paying unnecessary fees and penalties. You can also lower your monthly payments either with a higher credit score or even by stretching the payment timeframe longer.

Analyze your debt problem

When you start to look at effective debt payment strategies, you might be tempted to just look at how you can pay it back. After all, that is the end goal. However, you can quickly get back in debt if you do not analyze the problem. Paying off financial obligations could simply be treating the symptom and not addressing the cause.

You might be able to pay off your credit card debt you accrued because of uncontrolled shopping. Value Penguin even shares that balance-carrying households have an average of over $16,000 in card debt. But sooner or later, you will be in debt again if you do not change your shopping ways. As you pay off your debts, you need to make sure that you keep your impulsive buying behavior in check as well. It will turn into an endless cycle of payment if you add debt just as fast as you pay them off.

When you pay off your financial obligations, it will be a big help if you understand why you got into that position in the first place. Is it because of impulsive shopping, an unexpected emergency, or even a medical need? As you identify the reason why, you stand a better chance of protecting your budget. This will help ensure that you keep debt at bay and protect your finances as well.

There are a number of effective debt payment strategies out there to help you address your debt problems. They can give you the chance to save on interest payment or even give you small wins to keep you going. Debt consolidation can also give you the peace of mind where you simply have to focus on one set of payment details every month. If you get to enroll it in automatic debit, you get to enjoy the freedom of checking in every month and be able to set your sights on more important things in life.