TENCU Chronicles

Four Steps to Success

1. Assess Your Motivation

Repaying debt demands dedication. Ensure your motivation remains steadfast to avoid setbacks such as missing extra payments. One effective approach involves targeting the smallest balance first. By achieving small wins, you stay motivated, progressively tackling larger balances until you are debt-free. Alternatively, if larger balances bear higher interest rates, a mathematically sound strategy involves prioritizing those debts to minimize financing charges.

2. Evaluate Interest Rates

Scrutinize the interest rates on your debts. Prioritize repayment based on rates; tackling higher-interest loans first maximizes savings. Review APRs on card and loan statements to determine the repayment order, emphasizing debts with the highest rates for quicker progress.

3. Check for Prepayment Penalties

Some loans impose prepayment penalties, affecting the cost-effectiveness of early repayment. Understand the terms of your loan agreements to identify any potential fees associated with settling debts ahead of schedule. Factor in these penalties when deciding which debts to prioritize.

4. Consider the Wisdom of Early Repayment

Reflect on the wisdom of settling a particular debt prematurely. If the interest rate is lower than potential investment returns, reconsider making extra payments. Mortgage loans, often considered "good debt," may not require early repayment, especially if their rates are competitive. Assess whether paying off a specific loan aligns with your overall financial goals.