Debt can be overwhelming and weigh one down financially, and it may even cause stress in daily life. Whether looking at credit card balances, student loans, or personal loans, ensuring you have an effective strategy to pay off your debt faster can give you relief and lead you to financial freedom.
This instructive guide will examine some of the various ways and alternatives that exist to help you accelerate the process of paying off your debt. By doing so, you can free yourself from the cycle of debt much sooner than you might imagine.
Before strategies, it is important to have a clear picture of your current debt situation.
Take Inventory of Your Debts
Start by making a list of all of your debts, including:
Creditor names
Outstanding balances
Interest rates
Minimum monthly payments
Due dates
This summary will give you the big picture of how much you owe and will enable you to prioritize your payback efforts.
Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio is the percent of your monthly income applied to repay debts. To find out what it is:
- Add together all your monthly debt payments
- Divide this number by your gross monthly income
- Multiply by 100 to find the percent
The lower it is, the healthier you’re doing financially, and you may have a better chance of qualifying for debt consolidation options when necessary.
Building a Healthy Debt Repayment Plan
Having gone over your debt, it is now the time to present a plan for its repayment.
The Debt Avalanche Method
Herein, priority is given to debts having the highest rates of interest as follows:
- Minimum payment is made on all debt items.
- Take any extra money and apply it toward the debt with the highest interest rate
- Once that debt is paid off, go to the next highest interest rate
The Debt Avalanche will save you the most money in interest over time.
The Debt Snowball Method
This method goes after the smallest debts first:
- Make the minimum payments on all debts
- Take any extra money and apply it toward the smallest debt
- Then pay the next smallest and so on.
The Debt Snowball provides quick wins, and those can be motivating to keep the ball rolling.
Pick Your Poison
Choose the method to best fit your financial situation and your personality. Some people like the straightforward logic of the Avalanche and some prefer the psychological bounce from the Snowball.
Turbo Charge Your Debt Payoff
After you have determined what works for you, try these methods to accelerate debt payoff.
Make Bi-Weekly Payments
Instead of paying once a month, make a half payment every two weeks. You will end up making 26 half-payments a year, which equals 13 full monthly payments, and will accelerate your debt payoff, saving money on interest.
Round Up Your Payments
Round up your payments to the nearest $50 or $100. For example, if your minimum payment is $220, pay $250 instead. Over time, that little bit extra will add up and become significant.
Apply Windfalls to Debt
Use unplanned money such as a tax refund, a bonus from work, or even a gift and apply the funds to make lump-sum payments to your debt. These periodic large payments you make will go a long way in whittling down your balance and overall interest owed.
Negotiate Lower Interest Rates
Try calling your creditors and asking for a lower interest rate. If you have a history of on-time payments, they may be willing to reduce your rate, which means more of your payment goes towards the principal.
Increasing Your Income to Tackle Debt
Sometimes, it’s just not possible to cut expenses far enough. Increasing your income provides more money that can be dedicated to getting out of debt faster.
Take on a Side Hustle
Consider freelance work, part-time jobs, or gig economy opportunities with companies such as:
- Ride-sharing or food delivery services
- Online tutoring or teaching
- Freelance writing or graphic design
- Pet-sitting or dog-walking
Apply the extra money only to debt repayment for maximum power from your hard work.
Sell Items You No Longer Use
Take a look around your home to see what you don’t need anymore. Sell items through:
- Online marketplaces like eBay or Facebook Marketplace
- Consignment shops in your area
- Yard sales or flea markets
Invest proceeds in extra debt payments.
Rent Out Space
If there is space in your house to spare, you can:
Rent out a room
Offer space for parking
Store items of someone else’s for a fee
It can serve as a regular source of additional income which you can invest in debt repayment.
Reduce Expenses to Free Up Money for Debt Repayment
By reducing costs, you will be able to free up more money and invest in debt repayment.
Make a Bare-Bones Budget
Temporarily live on a bare-bones budget that only accounts for essential expenses. Set aside every saved penny toward debt. This could include the following:
Cooking at home versus eating out
Canceling subscription services
Using public transportation rather than driving
Negotiate Bills
Call providers and negotiate better rates regarding:
Cell phone plans
Internet services
Insurance premiums
Even minor cuts can add up to free up more money to put toward your debt.
Use Cash or Debit Cards
Stop using credit cards and temporarily resort to cash or debit cards to finance your daily expenditures until this may prevent you from increasing your credit card debt and make you more conscious of spending.
Consolidation and Balance Transfer
Sometimes, it’s also a good idea to consolidate your debt or use balance transfers to pay off your debt faster.
Balance Transfer Credit Cards
If you have good credit, you might want to transfer high-interest credit card balances onto a card with a 0% introductory APR. Look for cards boasting of long 0% APR introductory periods, up to 12-18 months. Pay close attention to the balance transfer fee to make certain it is worth it. Plan to pay off the balance before the introductory period expires. aliquam ultrices purus, in mattis ex feugiat id. In vel rhoncus massa. Mauris et ligula at libero eleifend porta. Suspendisse potenti.
A debt consolidation loan rolls a number of debts into one loan-usually at a more favorable interest rate. Ways to get the best deal include:
Shopping around
Ensuring the interest rate is below your current average rate
Using the loan to pay high-interest debts
Abiding by the plans of repayment to avoid prolonging the payoff timeline
Keeping Motivated While Paying Your Debt
Paying off debt takes time. Stay motivated using these techniques.
Track Your Progress
Regularly update your debt amounts and celebrate your progress:
Use an application or spreadsheet to track your debt payoff
Make a visual for yourself, such as a debt thermometer
Celebrate each $1,000 paid or 10% less total debt
Find an Accountability Partner
Share with a trusted friend or family member your goals:
- Regular check-ins will keep you on track
- Bring any challenging issues to share and discuss solutions together
- Celebrate successes with your accountability partner
Visualize Your Debt-Free Life
Imagine what your life will be like without debt:
- Create a visual board of your financial goals
- Write a letter to your future debt-free self
- Plan a (reasonable) reward for when you become debt-free
Avoiding New Debt
Paying off debt is one thing, but not adding more debt is another. While you’re busy paying off old debt, it’s very important not to build up new debt.
Build an Emergency Fund
Begin building an emergency fund of say $1,000 to cover unexpected expenses:
3-6 months of living expenses over time
This is used for emergencies instead of credit cards
Practice Mindful Spending
Every time you buy something or think about making a big purchase:
Ask yourself if this is a want or a need.
- Could I delay this purchase?
- Is there a cheaper alternative?
Use the 24-Hour Rule
For purchases other than essentials, wait a period of 24 hours before making the purchase:
A cooling-off period can help you avoid an impulsive buy
Often, you will come to a realization that you really did not need what you thought you needed
When to Seek Professional Help
Sometimes you may find yourself in over your head with debt and it is just too difficult to manage on your own. Be aware if and when you need to seek help.
Credit Counseling
Consider reaching out to a non-profit credit counseling agency if you:
struggle to make minimum payments
haven’t set up a budget
want professional advice regarding all your options for handling debt
Debt Management Plans
A credit counseling agency DMP is the perfect fit if you:
have built up a large amount of credit card debt
are being strained by high interest rates
want a service to negotiate with your creditors for you
Legal Advice
Contact a financial attorney if:
You would want to declare bankruptcy.
You are threatened or involved in any form of court action from creditors.
You need counsel in complex financial situations.
Conclusion
Overcoming debt faster requires dedication, planning, and for most people, life changes. On top of knowing your debt, picking the right method of repaying it, and several acceleration strategies, you will be able to cut down the time it takes to be debt-free by a half. Keep in mind, every dollar extra spent on your debt is your way to financial freedom.
Keep in mind your goal, celebrate those little victories en route, and don’t be too proud to readjust in your line of action if this or that way isn’t working. It could take some time, but persistence, with the proper approach, will help you overcome this debt and head toward a healthier financial future.
Of course, it may take some pain to get out of debt, but it is well worth the effort, considering the peace of mind and financial flexibility you’ll gain. Get to work with these strategies and take control over your financial destiny now. Your future self will thank you for all the hard work and dedication it took to become debt-free.
