Getting a loan can help you own a house, a car, or things that can make your life more comfortable. However, it can also be a burden when you start to encounter difficulty in paying the debt. Or worse, if you start to miss payments.
You can also incur debt from loans from friends and family or your overdue credit card bills. Having multiple debts is a tough mountain to climb and it gets steeper the longer you delay payment.
If you’re juggling multiple debts, we recommend you to try these steps to being debt-free:
1. Ask yourself: “How much do I owe?”
If you haven’t done this yet, open a spreadsheet and list down all your debts. Start listing how much you owe, the interest rate, monthly payment, and payoff time frames. Also, name what the debt is for, and the lender. This way, you’ll have a complete picture of everything you owe.
2. Come up with a strategy
This method requires you to pay off the smallest debt first. With this, you’ll be able to finish multiple debts a lot quicker. Although you won’t be paying off your big debts initially, this will help build momentum and will motivate you on your journey.
In this scenario, the debt snowball method would have you pay off the personal loan first. After you finish paying off the personal loan, you’d settle the car loan, and then the home loan
Using this method, you’ll tackle the debt with the highest interest first. Finish paying the loan with the highest interest first, then proceed to the next debt with the highest interest and so on.
This method gets you out of the biggest debt first, which will let you focus your energy on paying smaller ones. Usually, the biggest one is also the most problematic one so having that off your chest will go a long way for your mental and financial health.
The progress using this method may be slow but you’ll be able to save more money because you’re focusing your money in debts that have the highest interest.
For this scenario, the debt avalanche method would have you pay off car loan first. After you finish paying off the car loan, you need to focus on finishing home loan, and then the personal loan.
Mathematically, the debt avalanche is effective over time because once you finish off the debt with the highest interest rate, the sum of the interest payments would stop increasing quickly. This method is better if you’re the type of person who doesn’t mind not seeing progress immediately. But if you’re the type of person that is easily motivated when progress is visible, then the debt snowball is for you.
Now that you know how to tackle your debts, here are tips to help you pay it off easier:
3. Cut your expenses
List down your monthly expenses, and see what you can get rid off without drastically changing your lifestyle. Maybe cut your milk tea spending. Consider alternatives, or try other–cheaper–brands. And maybe stay away from malls and online stores for now.
Basically, do anything to avoid temptation.
For more tips on saving, you can read our other guides:
4. Find extra income
If you consider your milk tea sacred, then you should find ways to earn extra money for your holy nectar. If you can spare time and effort, look for part-time jobs, side projects, or try freelancing. Open an account and separate your other sources of income.
5. Get help
If all else fails, talk to your lender. Let them know your situation. This gives them the opportunity to work a solution with you. Solutions depend per lender and may include refinancing, moving your due date, or balance transfer.
This may be uncomfortable for you, but try to talk to your family and your closest friends. They could have been in the same place as you and have solutions to handle your situation.
Before getting a loan…
Before getting a loan, study the different kinds of loans. Know the difference between good debt and bad debt. Find the best loan offers and make sure you have a good working relationship with your lender.
Check out our loan options here.
Create an emergency fund for unexpected events such as accidents, illness, sudden loss of income, or any unforeseen expenses. Basically, when your life derails, you’ll have a safety net. Learn how to make an emergency fund by reading our comprehensive guide: How to Start and Build Up an Emergency Fund