3 Best Options to Pay Debts – Snowball, Avalanche, Consolidation
Sometimes debt can be good for helping you build a credit score or achieve goals, such as buying a home, that would be difficult to achieve without a loan. However, many additional debts can affect your credit score and add interest that you may never want to pay but still you will have to pay.
In general, there are 3 debt repayment strategies that can help people pay off their debts more efficiently. They are as follows:
(1) The snowball method
With this strategy, pay off the smallest debt you have as quickly as possible. On the other debts you have, you will need to pay only the minimum that is required.
Then pay that extra toward the next larger debt. A quick payoff is a quick win and can be a confidence booster.
(2) Debt avalanche
Pay off the largest or highest interest rate debt as quickly as possible. Pay minimums on all other debts.
Then pay that extra toward the next smaller debt. Paying off a large debt can increase a sense of control and also eliminate large interest rates.
Check out: Snowball & Avalanche debt payment strategies
(3) Debt consolidation
Combine your debts into one account. Avoid any other debt until existing debts are fully paid. This way, you will have possible lower interest and a single account to pay monthly.
Debt consolidation through a liquidity loan
Debt consolidation refers to the grouping of all the debts you currently have with different lending institutions. This helps in generating credit with a lower interest rate, or a better financing term.
The best way in which you can pay off your debts is by debt consolidation through a home equity loan. When you apply for this type of financing, your home will be used as collateral for the loan with the financial institution of your choice. When you receive the liquidity, you will be able to pay all your debts and you will only have to worry about paying one: the liquidity loan.
Benefits of consolidating your debts
- Mortgage loans to finance debts usually offer a lower interest rate in the market.
- Interest rates are lower than those generated by credit cards.
- You get longer terms to repay the financing, which generates economic stability.
- Your credit history improves, which opens up opportunities in the future when you want to apply for credit
Don’t wait any longer to pay your debts!
I am Nikesh Mehta, owner and writer of this site.
I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.