Paying off debt fast especially the bad debt should be your priority. There is good debt and bad debt, and if you have bad debt on a credit card or through a personal loan, paying off debt should be your priority.
Whether you owe 3,000 Kshs on Mshwari or tens of thousands over other Mpesa loans, plus a car loan, the thought of trying to get out of that hole can seem overwhelming. But you just need to take things one step at a time to enable you pay off debt fast.
First, work out exactly how bad things are especially your bad debt. Make a list of all your debts. If you have only one loan it’s pretty simple, but if you have several loans you need to make a list. Include every credit card and any personal or car loans you may have.
Write down the outstanding loan balance, the loan interest rate and the minimum monthly loan repayments. Add them all up to figure out the total loan amount you owe.
If you have more than one bad debt, a common suggestion is to list them in order of interest rate from highest to lowest. The idea is that you focus on the debts on the top of the list first. If two have the same rate, make the smaller loan balance your priority.
Continue paying off debt that is lower on the list, with minimum repayments. Once you have paid off the first debt divert the extra money to the next one on the list.
Another option is to use the snowball method, ranking bad debts by balance instead of rate. Then, focus on paying off debt fast with the lowest balance first. Pay as much as you can off that first smaller debt, making only minimum repayments on the others. Once the smallest debt is cleared, move to the next debt.
A big attraction of the snowball method of paying off debt is that, as you clear the small debt you should get a strong sense of satisfaction when you cross it off your list.
You really need to pay off debt as much as possible and ensure paying off debt is a priority, even over savings. It’s not much use putting money in a Savings account giving you 5% interest when you’re paying off 15% in interest on a bad debt.
Yes, have an emergency fund of a few thousand shillings so you don’t have to rely on your credit card for unexpected expenses but don’t forget to make paying off debt a priority.
If you have any “extra” money, use it to reduce your debt. For example, if you get a lump sum such as a side gig that went through, put it towards paying off debt.
Another option if you have credit card problems is to take up an introductory balance transfer offer with another bank. A common term is 0% for six months but more banks are offering longer periods.
For example, some Platinum card offer 0% for 24 months with a 1% balance transfer fee. As well as the transfer fee, consider the annual fee on the credit card and what rate you’ll be charged when the promotion ends.
The right choice depends on how much you owe and what you can afford when paying off debt each month. Of course, don’t make any new purchases; just focus on paying debt fast.
If you have several debts, consolidation might be an option too. This involves rolling over all debts into a single loan, whether it’s a personal loan or mortgage.
The best thing about consolidating your debt into a personal loan is that you make one repayment each month instead of several. You know that at the end of the loan term the debt will be repaid and out of your skin forever.
The other plus is that you can consolidate other types of debt as well, such as car loans depending, of course, on the loan amount that is approved.
If you have equity in your home, rolling over the debt into your mortgage is worth exploring. The biggest plus is that a mortgage is one of the cheapest loans you can get. If you take this route make sure you find out if you’ll incur a fee for topping up the loan.
If you have a small debt and the fees are high it might not be worth it. It’s also important to make extra repayments on your home loan to help you pay off debt fast, rather than extending it over the remainder of your loan.