Effective Ways to Pay Off Debt Faster
Most of us will have debt of some form in our lives (i.e., credit cards, car loans or home loans). One way to pay off your debts as efficiently as possible is to consider the order in which you pay them.
Consider someone with the following debts:
| Loan Type | Balance | Interest Rate | Repayments |
| Home Loan | $450,000 | 4% p.a. | $1,280 p/m |
| Car Loan | $35,000 | 7% p.a. | $650 p/m |
| Credit Card | $15,000 | 19% | $250 p/m |
Many people would focus on paying down as much of the home loan as possible first- it does have the highest balance and repayments.
However, the other loans have much higher interest rates and their balances are lower which may make them easier to pay off sooner.
Assuming the credit card is paid off in a year, the money that would be used to pay that off could go towards the car loan:
| Loan Type | Balance | Interest Rate | Repayments |
| Home Loan | $450,000 | 4% p.a. | $1,280 p/m |
| Car Loan | $35,000 | 7% p.a. | |
Once the car loan is paid off there would be an additional $900 p/m that could do towards the home increasing the repayments to $2,180 p/m paying it down faster and saving you more interest in the long term.
Everyone’s situation is different and speaking with a financial adviser can help you find the best way to reduce your levels of debt and how much you must pay. Contact us today to find out how we can help.
