Faircent Bureau Have you been feeling overwhelmed by debt of late? If your target is to free yourself from debt then below are three classic strategies to your rescue as per your comfort. However, one thing is very sure: If you do not have a plan then there is no possibility of emerging from this debt spiral. When in doubt, repeat these words: Plan and Budget: follow the Plan, stick to the Budget. Especially and definitely if you have several kinds of debt. Also, if you have a credit card then paying only the minimum debt is not going to ever help – you will choke on interest payments and in the end realize with a rude shock that principal was only a small portion of your entire repayment amount. Without eating your time any further, let’s list out each of the three strategies: 1) Debt Avalanche Method All you arithmetically inclined minds, this is your yummy pie. You swallow the debt with highest interest rate FIRST, as it is costing you most. Literally. Suppose, this was your list of Debts: a)Student Loan: Rs. 5,00,0000 @ 14.25% b)Car Loan: Rs. 1,50,000 @ 10.5% c)Credit Card# 1: Rs.45,000 @ 36% d)Credit Card# 2: Rs. 1,50,000 @ 38% e)Credit Card# 3: Rs. 25,000 @ 30% Using the debt avalanche method, you will focus on repaying Debt# d, followed by c, e, a and b ranked in order of interest rate payouts. Hence, any additional funds out of your financial budget go towards paying off Credit Card# 2 in addition to paying the minimum on rest of your debt. Here, the loan size or loan balances are not taken into consideration. 2) Debt Snowball Method This is your emotional mumbo-jumbo taking precedence. And it is a very crucial factor in fighting debt and helps in winning the all-odds-stacked-against-you-situations. This is a loan size or loan with least balance method. Pick your smallest pie first. Yep, target the loan with lowest balance and hit your first “swift win”. This will give you motivation to pick the next smallest loan and raise your momentum of repayment. Using the above example: Target credit card#3, followed by credit card# 1, Car loan, credit card#2 and finally the big fat student loan. Also, any additional funds out of your financial budget goes to repaying the smallest loan and continue servicing the others as usual. Once the credit card#3 is paid off, hold it, unleash your financial confidence and snowball the payment being made on this debt onto the next debt and so on. The debt repayment would snowball into something bigger with each repaid debt and your worries are going to head further away from you. Acceleration impact! Did we not say that this is an emotional decision that really pays off. 3) The Debt Snowflake Method This is more like a cousin of the snowball method. You might considering opting this if tackling huge amounts of debt gives you shivers and compounding on that is you have irregular income. You take small baby steps towards freeing yourself from debt by targeting smallest loan to largest loan and by paying small but more frequent payments towards your debt. In a bit longish time but surely like a baby you will learn to sprint. Consider this, You can afford to pay Rs. 20,000 towards your debt every month but have an erratic cashflow and hence cannot repay a lumpsum amount. Hence, divide Rs. 20,000 by 4 weeks to Rs. 5,000 per week and start repaying. Diligently. It is going to look less of a burden that way. And we hate to repeat but do it anyway, any additional funds out of your financial budget goes to repaying the smallest loan and continue servicing the others as usual. Also, did you just save Rs. 500 in your grocery bill this week? Did you just find Rs. 1,000 in an old coat pocket?, Did you sell an old microwave for Rs. 1,200 and so on. Take a deep breathe and contribute it all towards the debt you are targeting. Now pat yourself for this achievement! What is essential to understand is that these small amounts add up to a sizeable chunk over a period of time and ease the debt burden for you. Fast forward a few months into the future and you will feel more confident, less burdened and more financially powerful. Now, which is your method?! You might find it odd but all three methods are good depending on your income flow and comfort. It is recommended that you list all your debts in detail, including current balance, rate of interest , minimum payment and tenure. Choose the method which is going to leave you with most satisfaction and motivation in crushing the debt. You could additionally try mixing up these methods and see what works best for you.If adding up the minimum payments leave no room for excesses out of your budget, then you might consider exploring ways to supplement your primary income Caution: Avoid accruing additional debt during this period except during emergencies. The new phone, an additional pair of shoes all avoidable expenditures are a welcome break.