Debt Reduction Strategies
There are numerous ways one can reduce their debt but must explore pros and cons for each strategy.
Annual Percentage Rate
This strategy focuses on paying back the creditor that charges the highest annual percentage rate first, while paying minimum payments to other creditors. Once you have paid off the worst creditor, move on to creditor with the next highest rate. This is the best bang for your buck strategy and prevents the interest disease to spread rapidly.
If a person wants to keep himself motivated on the path of debt reduction and likes to celebrate small successes and cherishes ‘paid in full’, then this is the strategy for him. This strategy focuses on quickly eliminating debts that are easiest to pay off as a top priority. This means one pays off the debt that has lowest number of payments. It may cost a little more than Annual Percentage Rate strategy but helps you enjoy success at quicker intervals.
Lowest Balance First
It prioritizes your debts based on which one has the lowest balance. The research shows people who pay off the smallest debts first are most successful with debt reduction. So it’s always great to wipe away those ankle biters and then focus full force on the big ones.
Highest Balance First
If a person like to go head on with a challenge and tackle the biggest problem first, then this is their strategy. This strategy focuses on whittle down the debts that are largest and prioritize your debts with the highest balance first and see that towering debt melt away.
Lowest Payment First
This strategy puts your lowest monthly payments first and keep multiple creditors off one’s back even in most difficult times.
Highest Payment First
This strategy focuses on paying off highest debt first as the highest monthly payment may be most critical to a person. This can be mortgage on their house that keeps roof on their family and would be heartbreaking to have it foreclosed.