What debts you should pay off first

What debt to pay off first

What debts you should pay off first

Many South African consumers have faced financial difficulties before, or are currently over-indebted and struggling to find a way out. When drawing up a monthly budget aimed at overcoming debt and improving your financial situation, it is important that you prioritize what debts to pay off first. When you decide on the strategy that you will follow, make sure that it aligns with your salary and expenses and can realistically be implemented and maintained.

When you’re struggling to meet all your monthly financial obligations and have various debts to pay each month, it can be challenging to know which debts you should pay off first. Our highly qualified Debtco Group team assist clients with financial relief and also provide our clients with the information they need to make sound decisions regarding their finances. Deciding which debts should be paid off with the most urgency depends on your situation, while it is advisable to focus on paying off one debt at a time, giving you room to continue paying off the minimal monthly instalments on your other debts.

Debts with higher interest rates typically include overdrafts, personal and pay day loans, credit cards, clothing accounts and any medical debt. It makes the most sense to pay these debts off first, as they cost you the most every month. You will save on interest costs in the long run if you are successful in paying off the debt that has the highest associated interest rate first, and you will then have more money freed every month to redirect towards paying off your other debts.

In South Africa, 20.5% is the current maximum interest rate that may be charged on a credit card, resulting in high monthly payments that create a dent in your disposable income. Some of your biggest debts might also be those with the highest interest rates, so depending on how much more you are paying each month, it could still take a while to finish paying off specific debt, which requires patience. Keep the bigger picture in mind as you work towards your money goals, and stick to your debt repayment plan.

Although paying off your highest interest debt first makes the most sense financially, another option is known as the Snowball Effect, and involves paying off your lowest debts first. The logic behind this approach is that these debts are less overwhelming and can be paid off in less time, leaving you with more money in your pocket afterwards that can be used to fully pay off the remainder of your debts. Just as each individual’s finances differ, so will their approach to paying off debt as effectively and proactively as possible.

If you are facing insurmountable debts with monthly payments that are out of your reach, get in touch with Debtco Group today to discuss our Debt Counselling service. Our team of financial experts are ready to assist you in achieving financial freedom.

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