How to get rid of loans: 2 working ways
At first, loans are encouraging opportunities to resolve financial issues, and seem to be quite harmless. As the borrowed amount increases, so does the cost of servicing the debt, until one day you come to the realization that you are not able to cope with the amount of monthly payments. No matter how difficult the situation may seem, there are always options for how to overcome a personal financial crisis, having come out of it as a winner.
You should not assume that your problem with credit debt is unique. Every person during his life many times gets into difficult situations that it seems impossible to deal with. Instead of spending years on debt servicing, it is better to use all means to get rid of credit obligations.
Statistics in the area of lending remains alarming: in the first 3 months of 2018, the number of borrowers increased by 20%, and for the period from January to June 2018, the credit burden increased by half. Experts do not get tired to warn that the mindless lending and spending of bank loans threatens with a debt pit, getting out of which will not be easy. For this reason, a loan is valid only in an emergency. Loan purchases of home appliances and repair of an apartment for borrowed funds often result in the need to pay the bank a high interest, not allowing you to accumulate any serious amount. As a result, a vicious circle occurs when, at the end of the repayment of one loan, you have to go to the bank again in view of the need for a new expensive purchase.
It is enough to calculate how much over the past 5 years you have overpaid on loans in order to have a strong desire to get rid of credit dependence for your own benefit. Below are 2 ways to say goodbye to loans. The borrower chooses a method at his discretion, taking into account his personal abilities for self-discipline and control.
Method number 1. Snowball effect
This scheme is the simplest one, which does not provide for special knowledge in the field of finance and the manifestation of financial foresight.
To use this method, all debts are written out in the general list, starting with the smallest loans. First of all, they get rid of insignificant debts, which are easier to handle, having a load of payments on other loans.
As you get rid of minor loans, the amount is released, which is sent to close a large debt. Until the first loan is paid, the amounts for payment of the second and subsequent ones remain minimal. When the first loan is repaid, all efforts are made to pay the second loan, etc.
Apply the proposed scheme is not difficult. It is not necessary to analyze the percentage overpayment, identifying the order of the size of the rate.
Strengths and weaknesses of the method
The main advantage of the “snowball” is a clear awareness of progress, when small liabilities are repaid over and over again. When the situation seems hopeless and the payment impossible, the feeling of the first results inspires and tunes in a positive way.
Credit bondage can destroy faith in yourself, instilling panic and despair. When the first small victories appear, coping with problems is easier. In addition, it will save from rash decisions and financial mistakes.
For ease of use you have to pay. The fact is that each loan has its own overpayment percentage. Some loans cost almost nothing, others entail a high overpayment. Getting rid of loans with a high rate, a person receives as a result additional savings in debt servicing costs.
Since the non-repayable debt is more often formed by people who are unfamiliar with the concept of financial discipline, paying debt, directing all available funds to close obligations, will seem to them impossible. To succeed in the implementation of the method, it is necessary to initially revise your own financial behavior, adhering to the intended goal.
Method number 2. Avalanche effect
If the simplest mathematical operations are within your reach, compare the rates on current obligations, and set priorities based on the amount that the bank has to overpay. One the same amount may be in the first place to maturity, or the last. For example, taking 100 thousand rubles at 10% per annum, you overpay 10 thousand rubles for 1 year. If the rate is 15%, the overpayment increases to 15 thousand rubles.
Distributing all debts on this principle, a person gradually lightens the credit load, freeing himself from unprofitable loans. The principle of selection, depending on the amount of funds borrowed from the bank, does not apply here. The goal of the client is to reduce overpayment by eliminating expensive loans.
Advantages and dangers of an avalanche
Using the avalanche method, you optimize the available financial resources by directing them to pay off unprofitable loan conditions. The number of credits will strain the payer for a long time. However, in conditions of insufficient funds, focus all attention on expensive loans, skillfully maneuvering between several lenders as lending decreases.
Thus, the obvious minus is the fact that at first it will be morally very hard. The borrower will need to collect all the will and determination to consistently close the amount of several loans. It will not be 1 month when the client realizes that from a financial point of view he has made the right, informed decision.
The choice of method depends on the psychology of the borrower.
The question of choice is entirely at the discretion of the person. Each borrower has its own characteristics. A common problem for a borrower is concern for their own financial viability. Psychologically difficult to remain due to 3-5 lenders. The one who is accustomed to counting money and treasures every penny is more concerned that he is constantly forced to part with large sums, paying them to creditors. In the first case, it is recommended to act according to the snowball method, and in the second – on the principle of an avalanche.
Whichever option is chosen, it will require consistency in actions and strict adherence to the plan. In order to overcome the financial crisis in vain, the borrower will have to learn discipline and think about how to free up the maximum amount of money to pay off debt, including saving mode and giving up impulse purchases.