How to Devise a Debt Payoff Strategy
The types of credit on your account comprise ten percent of your total score, so it’s important to accumulate favourable debt and manage it well. But what constitutes as favourable? Typically, installment debt (auto loan or mortgage) is always better than revolving debt (credit card). This is because installment debt leads to the eventual attainment of a necessary or valuable asset, unlike revolving debt, which is more causal and unstable. Regardless of the type of debt, you must always take care of your payments. Since no one wants to be in-debt forever, it’s time to start thinking about long-term debt payoff strategies.
As a simple rule of thumb: the bigger the payments, the faster the debt will fall. This can be a dangerous rule to live by, however, since most people’s debts and incomes vary. The last thing you should do is generate additional debt to satisfy an existing account. Instead, take a look at your minimum payments, interest rates, as well as any other fees and form an appropriate payment plan. Here are a few things to think about after reviewing the specifics of your debt:
® Pay more than the minimum each month
® Target the largest debt first
® Reduce superfluous day-to-day expenses and put that money towards your next big installment
® Consider debt consolidation
Since purchasing a used vehicle or refinancing a mortgage are both considered installment debts, these may also serve as alternatives in your current financial situation. As well, when devising a debt pay-off strategy, many people forget to acknowledge old collections. Over time, debts can become time-barred — at which point the individual can no longer be held financial liable — but this doesn’t mean the consequences cease to exist. Paying off an outstanding collection will increase your payment history points, decrease your debt-to-income ratio, and free you of your financial obligations.