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Now that times are uncertain with the economy, it might be a good idea to reduce your debt. If you accumulated debt during the pandemic and took on longer-term debt a few years back, you may have a few different debts to pay off. This includes credit card debts, car loans and student loans. You may be overwhelmed to tackle many debts, but we’ve got you.

 

Here are some strategies to help you start paying off your debts. 

Prioritise high-interest debts

 

Firstly, focus on paying off your highest-interest debts. This will help reduce the amount of debt you’ve accumulated each month through interest. Try to pay more towards your high-interest debt by paying the minimum amount for your other debts. Once your debt with the highest interest rate has been paid off, you will be free from one of your debts and have reduced the amount of interest in totality. Think of it this way, if your high-interest debt is big, it can feel as though you’re making slow progress at the beginning. However, this method will help you get out of debt faster in the end.

Pay off your smaller debts 

 

Alternatively, you can focus on paying off your smallest debts first. As you pay the minimum on all your other debts, you can then channel more towards your small debts. This will quickly eliminate the number of debts you have at the beginning and because you’re experiencing quick results from the very beginning, you’ll be more motivated to pay off your debts. You can also choose to combine this method with the above. Pay off your smallest debts then tackle your bigger debts, starting with the highest interest rate. 

Create your debt management plan

Are you prepared to start paying off your debts? Well, along with choosing which debts to start paying off first, you’ll want to avoid accumulating debts. Some precautionary steps you can take is to lower your credit card limit or talk to your creditors to work out a better repayment plan. If you can manage it, try to also reduce your expenses whenever you can - and if possible, increase your income. The extra cash you have can then be used to pay off your debts faster.

 

Consider consolidating your debt 

One way to deal with multiple loans at once is to do debt consolidation. This combines your debts into a single debt. Hence, you will only have to deal with one debt. You might also be able to settle your debts with a lower interest rate. There are two broad types of debt consolidation loans; secured and unsecured loans. Secured loans are backed by your assets such as a house or a car, which works as collateral for the loan. Unsecured loans, on the other hand, are not backed by assets - once such example is a personal loan. As a rule of thumb, make sure you shop around for the best deal for your situation and compare the services out there before committing to a loan.

 

 

Taking the first step in paying off your debts is always the hardest. Start today and you’ll be able to enjoy a debt-free life. You can also contact us to discuss the many ways we can help to reduce your debt. 

 

 

This article is brought to you by CIMB as part of our ongoing efforts to raise the level of financial literacy among Malaysians. Financial knowledge and understanding are key to making well-informed and meaningful financial decisions towards positively improving welfare and well-being of communities. This is one of our many efforts to achieve CIMB’s purpose of advancing customers and society.

 

 


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