How to Outsmart Your Debts And Make Your Creditors Love You for Doing It

Below is a guest post about dealing with credit card debts by Joy Collado.
Read on and pick up the trick that applies to you.

Almost everybody is plagued with bad debts. While it can be overwhelming and stressful to pay a ton of debt, the act of paying them is an honorable act.

There is a lot of people who would run away from this responsibility. This will not  help you with your financial burden. As a matter of fact, you'll lose your credibility making it hard for other people or institutions to trust you again.

Below are methods on how you can outsmart your debts without being an irresponsible debtor. In fact, creditors will love and trust you for doing this.

First, list down all your debts and take note of their interests.

a. Pay the smallest amount first.

Since it's the smallest, it's the fastest one you can zero out. You can even opt to pay this in full right away if you have the budget. Or you can pay this in big chunks while paying the minimum amounts of the remaining debt.

If your debts are from credit card companies, minimum payments are allowed. If these debts are from personal acquaintances or friends, talk to them and sincerely ask them to allow you to pay in minimum payments for the next couple of months. Tell them you are sorting things out and remind them you are true and firm in your promise to pay. A lot of times, creditors just want an assurance that you won't run away so give them that assurance.

If you do this, be sure to keep your promise.

If you ever fail to pay the agreed minimum amount, don’t shy away and disappear! Talk to your creditors and assure them you are still willing to pay. The last thing you want your creditors to think is you’re running away from your responsibility. 

When you've finally paid the smallest amount, pay the next bigger amount in line. Do this until you've paid everything.

b. Pay the one with the highest interest.

It makes perfect sense if you opt to pay first the one with the highest interest as this will contribute to the bulk of the debt. Pay big chunks of this debt and pay the minimum amounts of your other debts with smaller interest rates . After that, you can opt to pay the next one with the second biggest interest rate until you've paid everything.

c. Distribute your income proportionately among your debts.

For example:

Debt A 10,000     17%

Debt B 20,000     33%

Debt C 30,000     50%

Total   60,000    100%

Suppose you have a budget of Php 10,000 each month to pay your debt. With this example we have the following monthly payments:

Debt A  1,700

Debt B  3,300

Debt C  5,000

With this method all your debt will be zeroed out all at the same time.

A lot of people would argue that Method B is better because you're paying first the amount with the highest interest. While some say the Method C is more efficient because you're not leaving anything behind. 

There is no right or wrong method. Choose the one you are most comfortable with, especially the one you can stick to.

At this point, the most important factor is your willingness to pay and you're making steps to fulfill your promise to pay. Don't get stuck on which method to use or you'll end up messing with Math and with your finances. What matters is taking one step at a time to financial freedom.

Joy Collado, Freelance Writer


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