2 Strategies For Paying Off Debt

13 Apr

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When it comes to paying off debt, there are really two schools of thought. That’s because like with anything else, the strategy that works for one person may not be the same strategy that would make another successful. Redondo Mortgage Center wants to make sure that you fully explore and understand the debt payoff strategy that will work best for you!

 

STRATEGY #1: Start with the smallest debt first

This strategy is based on the idea that once you start seeing your debts fall away (like that outstanding $100 electric bill from a couple months ago), you’ll begin to feel a sense of momentum and that will motivate you to push forward. This strategy will work best if you’re motivated by action and seeing quick results. To put this strategy into action, begin by listing your debts smallest to largest. For example:

Outstanding Electric Bill $100

Credit Card Balance #1 $552

Credit Card Balance #2 $1,225

Auto Loan $12,684

In this example, you would take any extra money each month and pay on the electric bill until it is paid off, followed by your first credit card balance, and so on.

STRATEGY #2: Start with the highest interest rate first

This strategy is based on the idea that paying off your debts with the highest interest rate first will save you money in the long run. This strategy is best for those who are motivated by really digging into the mathematics of debt repayment. Though interest rates won’t make as big of a difference over time if you simply have small consumer debts, it is a great mind trick that will motivate you if you like the idea of paying off the least amount possible. For example,

Credit Card #1 22% interest rate

Credit Card #2 19.5% interest rate

Auto Loan 4% interest rate

Electric Bill 1% interest rate

In this scenario, you would tackle your $552 balance on your first credit card right away to avoid paying the hefty 22% interest.

To learn more about the real estate services that Redondo Mortgage Center has available to you, visit us online at www.RedondoMortgageCenter.com or call 310-318-8999 today!



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