If you are faced with multiple debts to pay, prioritizing them is no longer optional.
Anybody can be debt-free in just a few years if they can plan wisely. Some people remain in debts for years, longer than necessary because of a “bad financial habit” or “financial dishonesty”.
Prioritizing your debts will help you consciously make wise payments, while making sure you are financially stable.
Here are some steps on how to prioritize your debt payments:
Know your total monthly income:
Know your total monthly income. Your total monthly income is the sum of the entire money you earn in a month, which may include basic salary, allowances, business profits, and the like.
Critically check your monthly expenses, excluding debt payments. Know the amount you spend on primary things like feeding, gasoline, school fees, and more. Is there a possibility of cutting down any of the expenses and still live comfortably? If there is, then make the decision.
Subtract your primary monthly expenses from your monthly income. The value you get should be consciously and wisely used to make your debt payments for each month; and the way you use it would be based on how you’ve prioritized your debts.
Prioritizing your debts:
The debts you are to give more concentration are the ones with higher amounts and interest rates; not just interest rates alone. These are the kind of debts that put people in big financial problems. Try as much as possible to pay beyond the minimum amount. Paying just the minimum will prolong the duration for complete payment, and the interest would add up within that duration.
Skillfully look for ways to pay far more than the minimum monthly payments of debts with higher amounts and interest rates. This will help a lot.
Your debts should be prioritized according to their amount interest rates. For example, you owe three debts of the following amounts and annual interest rates: $10,000 24%; $30,000 18%, $25,000 23%. The one of $25,000 should top the list, followed by the one of $30,000, then $10,000.
The one of $10,000 seem to have the highest interest rate. However, 24% of $10,000 would give $2,400 a year ($2,000 a month), which becomes the smallest amount when compared to the amounts of other debts. This is how you make calculations and determine which debt to give more concentration.
In some cases, minimum monthly payments can be as low as $50. You might not be acting wisely, even if you faithfully keep paying this minimum amount. Try as much as possible to pay even times ten of it; that is $500 or times three of it, and before long, you’d have paid off all your debts.