4 Tips on Paying Off Your Debts

September 10, 2020

4 Tips on Paying Off Your Debts

How can you pay off your debts?

  1. Figure Out the Total Amount You Owe
  2. Settle the Most Expensive Debt
  3. Live on a Budget
  4. Change Your Money Habits

Debts — this probably ranks high on the list of situations that people aim to avoid. For those people who are in less-than-ideal financial situations, they may find it difficult to settle their debts on time. Knowing how to pay off your debts is essential, simply because you don’t want to be in trouble with banking or other kinds of commercial institutions in the country. You don’t have to navigate this alone. Read on to learn more about the tips that can help you out.

Figure Out the Total Amount You Owe

Close up of businesswoman checking bills and calculating monthly

Before you even begin to settle debts, you’d first need to have a clear idea of how much money you owe. 

In informal transactions — say for example, you’ve borrowed money from a friend — then you’ll simply need a written note from them which states the value of money that you borrowed.

More formal debt transactions, credit card usage, on the other hand, may require you to secure a credit card balance document. Sift through all of your credit card statements or credit reports. The resulting value would serve as the amount that you’ve yet to pay.

Settle the Most Expensive Debt

Interest rates differ across different credit cards. Another effective tip is for you to settle the most expensive debt. By getting the highest value out of the way, you’ll now have more leg room to handle smaller payments. This is a great way for you to not feel overwhelmed while you’re in the payment process.

Make sure that you leave out ample time to plan out how you can secure the money to be allocated towards the highest-value debt. This allows you to set your expectations on how much you’ll need to earn first before settling the payment. 

Live on a Budget

Hand putting the coin to piggy bank (home model)

As much as possible, you’ll want to avoid buying any miscellaneous items that have a price tag which is far more than you budget can chew. Though it can be challenging in the beginning, the more consistently and strictly you’ll stick to your budget, the easier it gets for you.

Living on a budget enables you to even avoid garnering debts in the first place. You need to start off by defining a budget. By making a list of monthly, or even weekly expenses, you can set the amount of money that you’ll spend on each of them. Make sure that you consistently track and log your expenses to make sure that you’re not going overboard with your expenses.

Change Your Money Habits

Hands holding a credit card to buy things online

Accruing debt is easier than you may think. In fact, you can already even be in debt simply because you made an unnecessary purchase using your credit card. To change this, you’ll need to focus and subscribe to a series of good money habits and practices that are ultimately better for you, financially.

A good example would be to minimize your use of your credit card. It’s important that you exercise self-control when it comes to purchasing merchandise that isn’t really “needed”, to put it simply. 

Another good tip is for you to anticipate your financial situation in the future. This means being prepared for emergency situations that may require a large amount of financial capital. Set up an emergency fund, or stay on top of your insurance payments to help you out. 

Key Takeaway

The best way of learning how to pay off your debts is rooted in beneficial money practices. Nevertheless, recovering from this kind of financial situation is always possible. Devote some time to figuring out how much you actually owe. After you have listed every unpaid balance, pinpoint the most expensive debt out of all of them. Coupled with effective budget habits like listing expenses, and transforming your spending habits, then you’re already on the right track to minimizing your future debts, or not having any at all.