We already know that consumer debt isn't great for us.
Credit cards, car loans, or payday loans all come with huge interest rates that snowball to cost much more than it seems at first glance.
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But like most things, the stresses of Covid-19 have made having debt even worse for your mental wellbeing.
If you're worried about losing your job, debt is one more bill that needs paying.
If you're trying to build up emergency savings to give you stability, debt payments are one more thing soaking up your spare cash.
But the good thing is that if you're dealing with debt, a little strategy can go a long way. The way you make payments can mean you get rid of debt faster, and pay less overall.
Avalanche to pay it off fast
The avalanche technique means that you pick your debt with the highest interest rate, and put all of your extra money on to that.
You still make minimum payments on any other debts, because you don't want debt collectors knocking at your door.
But the one with the highest interest rate is costing you the most, so you're going to put your extra effort there. Once you've knocked it off, you put your extra effort into the one with the next highest interest rate.
By making more than the minimum payment you save yourself all of the extra fees and interest that debt would have cost you. You end up paying much less by the end of it, keeping money in your back pocket instead of the credit company's.
If you were a robot this would be the only way to do it.
Snowball for more motivation
You could take a different technique, which is to snowball.
You pick your debt with the smallest dollar amount, and put all of your extra effort into that.
It gives you a quick win, which is great for motivation, and keeping you on track.
Then you jump to the next smallest debt.
Avalanching may technically save you the most money, but that won't mean anything if you can't stick to it.
So choosing between the two is a matter of knowing yourself, and going for what you think will suit your personality.
Beware debt consolidation
You can choose to consolidate your debts in one place, with a lower interest rate, so that it's costing you less overall and you get rid of it faster.
But be careful that you've got mindset sorted before you do this.
A common mistake is for people to clear their old credit cards by shifting the balance to consolidate it, and then seeing those empty cards the same way a bull sees a red rag. You can go charging straight for them, and soon pile up more debt.
Consider cutting up the old cards that got you into a mess in the first place, so that you can't be tempted.
Earn extra cash to help pay it off
Another way to beat those minimum payments and pay it off faster is to generate some extra money.
Even if your boss isn't keen to give you a pay rise, there are strategies to help you make cash in a short period of time.
Firstly, look around you. Everything that you own used to be money. Do you want to turn some of it back into cash?
Some people choose to get rid of things around the house that they no longer use or need, flicking it off through Trade Me or Facebook marketplace.
You get a cleaner, uncluttered home, and more money to help you cut that debt. Win-win.
Other people choose to take on a side hustle. If you want ideas for a side hustle that works for your life, check out this previous episode of Cooking the Books.
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