Debt Consolidation

One of the best ways to speed up the repayment of your debts is to focus your attention on paying off the loans that carry the highest rate of interest first. Get rid of the debts that cost you most to service.

Heres what to do. Compare the interest rate on each of your loans and repay those with the highest rate first. The only way to do this is to look at the rate of APR on each of your debts. Thats the only way to decide which debt is more expensive. If youre unsure, check your loan agreement or ask the lender.

Then, its just a case of throwing everything you can at the debt with the highest APR (provided you can still make the minimum payments on your other debts).

Then move on to the next most expensive debt, and wipe it out. Then focus on the next most expensive, and the next, and the next, until youre entirely debt free!

This means that you should normally aim to pay them off in the following order.

Store cards, catalogue accounts and other hire purchase agreements
- Overdrafts
- Credit cards
- Personal loans/Car loan
- Mortgages and other secured borrowing

Get The Best Deal

Get the best loan deals that are available to minimise the interest that you pay.

Fact: Its much easier to repay a loan with an interest rate of 5.9% APR than one set at 29.9% APR.

The less interest that you have to pay, the more youll have left to repay the amount originally borrowed.

Transfer each of your debts to as low a rate of interest as you can find. Transfer debts on your credit cards to a lower rate card. You might be able to find a card that gives zero percent interest on all balance transfers for 6 months. Likewise, why continue to pay 30% APR on your storecard debts, when you could transfer the balance to a credit card that charges a much lower rate.

But if you decide to do that, Ive got two warnings for you. When you transfer debts from one of your plastic cards, destroy the old card immediately!

Avoid the urge to keep them, or before you know it both cards will be up to their limit, and youll be looking for an even lower rate just to keep up with the repayments.

And second, dont waste these interest free periods. Just because you dont have to pay interest for a while, dont ease up on your efforts. Keep paying as much as you can to reduce the size of the debt.

Interest free periods are a golden opportunity to substantially reduce your debts. Dont look on them as a ‘payment holiday, or as an excuse to increase your spending.

by Stuart Laing

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