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Here’s How To Prioritize Debt Repayments


Paying off your debt is not a fun, but necessary exercise. Often the joy of the purchase is long gone whilst the debt repayments seem to last forever. Consumers are often left wondering how to prioritize debt repayments. Who should be paid first and which accounts should we aim to settle early?

Rule Number One: Pay Every Debt Monthly

Pay ALL of your debt each and every month. Instead of choosing specific debts to focus on, make sure all debts get their minimum monthly payment. When it comes to prioritizing debt, we need to focus on additional payments.

Once we have made all minimum monthly debt payments, we can see how we can utilize additional funds. If you are unable to afford any extra payments towards debts every month, it’s not a problem, you are still doing fine.

If You Have Extra Funds Available, Try This.

If you have some money left over after paying all of your debts, here’s how you should make extra contributions. Focus on trying to settle all short-term unsecured debt first. Debts such as personal loans, payday loans, credit cards and store accounts have high interest rates. This means that they are costing you lots each month.

Knocking off these short-term debts will therefore you save lots of money. These types of debts also often put pressure on consumers monthly budgets. These types of debt carry interest rates of between 20-60%.

Secured debts, such as vehicle or home loans, have much lower interest rates. Interest rates on secured loans vary between 8-15% p.a. a

What Are Arrears?

Missing or short-paying your debts will push them into arrears. Each time you miss a debt repayment, the account will go further into arrears. The credit bureaus will be notified that you have missed payments. This negatively affects your credit score.

Your credit score worsens each time you miss a debt repayment. If you miss too many debt repayments your credit providers may initiate legal action to collect that debt. They will also start charging you penalties and extra fees, which increase the amount you owe.

Your immediate goal should be to catch up on all arrears. If you are unable to do this you should contact a debt counsellor. A debt counsellor can restructure your debts to make them more affordable for you. They are able to reduce your monthly instalments and interest rates which would save you lots of money in the short and long term.

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