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How to start tackling your debt

10 May

Posted by Tom Hartmann in Money tips, Budgeting, Managing debt | 0 comments

So you’re determined to pay down debt – fantastic. But what to pay off first? Working that out is the next step on your journey to financial freedom.

The best place to start is to list all the debts you owe and the interest rates for each. Include all personal loans, credit card balances, hire purchases and loans from family. You’ll find the interest rates in your bill or loan agreement.

Then list them in order of interest rate. At Sorted we always recommend you pay the debt with the highest interest first. Once that’s paid off, put those additional repayments towards paying off the loan with the next highest rate, and so on. Tackling debt in this way is the cheapest and fastest way to rid yourself of it.

Having said that, we recognise that some people will still find it more motivating to see the actual number of debts they have reducing. So they may choose to pay off the smaller debts first – even though it’s not the best approach financially. 

Similarly, if you’ve borrowed from a family member or friend, paying that loan may be your priority. The psychological pressure and the relationship stress that goes with owing family or friends can feel worse than any bank loan.

Whichever approach you take, the key is to start paying off debt and keep going. The sooner you start, the closer you’ll be to a debt-free future.

Sorted’s Debt calculator can help you calculate how long it will take to pay off your debts and the total amount of interest you’ll end up paying. If you are interested in how your personality affects the way you manage your money, try our Money personality profiler.