Make a budget
“The first step to regaining control of your finances and paying off your debts is to make a good budget.” Why? Because by putting your cash flow and monthly expenses in a budget network, you will be able to see more easily how much money you can free up to pay off your debts. While making a budget, you can find other costs that you can also reduce. Sometimes you just have to collect your pizza receipts for BGN 20 every Friday night to realize it’s BGN 80 or more a month and over BGN 1,000 a year. There are other tools that can help you get a better idea of your financial situation. For example, with our budget tool you will be able to calculate your monthly rest for living, see at a glance what your most important budget items are and reduce them if necessary.
Make a list of all your debts
To pay off your debts, you must first know them well. Make a list of all your debts, including their amount, but also the interest rate you pay for each amount. At different interest rates, two such debts cannot actually be equal. Yes, a debt of BGN1,000 is greater than a debt of BGN 500. But paying BGN 500 on a credit card and BGN 500 on a student loan doesn’t cost the same. Both do not have the same interest rate.
Prioritize the payment of your debts
How to choose? One method can be you pay your debts from smallest to largest, regardless of interest rate. Knock out the smallest debt first. Then, take what you were paying on that debt and add it to the payment of your next smallest debt.
Consolidate your debt
Consolidating your debts consolidates them by taking a loan from the bank so that you repay it all at once, and then you just have to repay that loan every month. For example, if you owe BGN 10,000 on two credit cards, you can apply for a loan for the same amount from your bank to reset your two card balances. Although the bank may have certain rules to help you avoid getting into debt, keep in mind that debt consolidation does not harm your credit rating. You will benefit from an interest rate that is often lower than a credit card, and you will only make one payment each month to repay. As you save on interest, your monthly payments may also be lower. And who knows, maybe you’ll be able to pay off your debts faster. “Debt consolidation is often seen as a last resort. It’s wrong. You should go to your advisor as soon as you have a debt, as soon as possible. They will be able to help you find the best strategy, such as debt consolidation, to help you regain control of your financial situation.” Obviously, each case is unique. As with any loan, the bank will examine your file before agreeing to a debt consolidation loan and setting the parameters for it.
Pay off your debts, but don’t forget your emergency fund and retirement.
While paying off your debts is a good way to regain control of your finances, don’t underestimate the importance of building an emergency fund and investing in your pension. “In an ideal world, you will have to combine all three: pay off your debt, create an emergency fund that costs 3-6 months, and invest in your retirement. But since this is not always possible, give priority to paying off your debts. Then you will have more money to put into your emergency fund, and then you can start investing.