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Payment Strategies are about becoming debt free without restructuring your finances. Payment Strategies are the main tool of financial counsellors. These strategies work best with credit card debt. If you have personal loans, there maybe a penalty for paying out early which counteracts any savings. If you have both, there are still benefits to Payment Strategies.
Payment Strategies are ideal for people who are repaying their debts but have money left over. Payment Strategies help you to save interest and become debt free faster. If you have no money left over and can’t make payments on your debts every month, Payment Strategies are not for you
What happens if you do nothing?
If you do nothing and just pay the minimum payments, you will eventually become debt free. The time it takes to become debt free is longer than if you used a Payment Strategy.
No Strategy Example: Three Debts
| Credit Card | Balance | Rate | Repayment |
| Credit Card A | $1,000.00 | 27% | $30.00 |
| Credit Card B | $2,000.00 | 10% | $40.00 |
| Credit Card C | $2,500.00 | 15% | $50.00 |
Results
Payment Strategy 1: High Interest Strategy
Mathematically, the quickest way to repay your debt is to take your surplus money and use that to make extra payments on the highest interest debt. This saves you the most interest.
Steps
Payment Strategy 1 Example: Three Debts
Under the High Interest Strategy, the repayments would be as follows:
When Credit Card A is Repaid
When Credit Card B is Repaid
Results
Payment Strategy 2: Snowballing
Psychologically, the best thing to do is to repay the smallest debt first. It can be frustrating paying all this money on your debts when you don’t seem to be going anywhere. If you snowball, you get to reduce the number of debts as quickly as possible, which is great for motivation.
Steps
Payment Strategy 2 Example: Snowballing
Under the Snowballing Strategy the Repayments would be as follows:
When Credit Card A is Repaid
When Credit Card B is Repaid
Results
The Payment Strategy we recommend is Snowballing. Mathematically, it isn’t the best payment strategy, but becoming debt free is one part math and nine parts psychology.
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