Personal loans often make our lives easier by helping us out during the cash crunches. But never to ignore the fact that paying off the loan(s) is a liability and failing to fulfil the same can land us in hot water at any given time. Personal loans of all kinds are generally costlier than secured loans which generally result in high equated monthly instalments (EMIs). If you have more than one loan, there are times when it seems to be challenging to pay off all the loans.

Managing many loans and EMIs simultaneously can be frustrating at times. Coming out of all those loans and live a life free form debt burden may sound impossible. But though it is difficult, never impossible. One can definitely come out of all kinds of debts if the right steps are taken. Being free from many debts cannot happen overnight or within a day. It takes time and consistent effort to come out of the quicksand of debts. Growing a disciplined financial habit and taking a few wise steps together can make you come out of all debts.

The experts on personal finance suggest the two most effective methods of debt repayment. The first one is – Debt Snowball Method and the second one is The Stack Method. Let’s learn what are these two methods and how can they help us to pay off our debts.

Debt Snowball Method

To understand this method better let’s picture a rolling snowball starting from the top of a snow mountain. At the time of starting the ball was small. But as it comes down, it keeps on adding layers on it and gets bigger with each roll. By the time it reaches the plain, the ball will turn to a boulder.

Similar to this scenario, in this method of loan repayment, one starts paying off loans which has a small outstanding amount regardless of the interest rate. Over time, the borrower gets momentum and aims to pay off the next loan. Here in this method, one has to make a table of all his credits and arrange it in ascending order so that the lowest comes at the top. The borrower will aim to pay off the lowest amount first then slowly move to the next one. When one pays off one loan, some amount will be spare and gathering all those extra money, he/she will be able to pay off the next loan. In this way, consistency effort for a stretch of time will make the borrower debt free.

The Stack Method

The stack method is slightly different from the snowball method. Unlike the snowball method, here in this method, the borrower pays off the costliest loans first. The interest rate may differ in different kinds of loans such as personal loan or credit card outstanding payment. Here the stack method, the borrower makes a list of all credit. The list of credits will be made in descending order according to the interest rate. It means the credit with the maximum interest rate will be at the top hence the priority will be given to that specific credit. The borrower will try to pay off the costliest loan first so that the interest outgo can be saved. Once the costliest loan will be paid off, much money will be saved and paying the remaining the loans will be comparatively easier.

A Few More Steps

So the above mentioned two are the two methods of loan repayment. Once you have chosen any of the both, you are to be determined to stick to the same till you hit your aim of being debt free. The debt repayment requires a lot of determination, self-control and discipline. When you are under numerous debt, make sure that you don’t add any more debts to your portfolio. Keeping yourself away from new credits is the first and most important step to be taken.

Secondly, when your aim is to be debt free, try to live within your means. Overspending or making unjustified expenses should be a big no.

The next step is the savings. Here at this stage of life, you are to have savings so that the amount can be paid towards loan repayment. Make your monthly budget bit more stringent and make sure that you stick to your budget till the end of the month. Cutting down extra expense is certain to have some extra money with you at the end of the month. After a few months, you will be able to collect a considerable amount which will be helpful to pay off loans.