How To Pay Off Debt Fast
Debt is one of those things that seems like a good idea at the time, but turns out to be a compounding mistake. Whether it’s a credit card debt, car loan, or a mortgage we owe money. When you have debt, you need to pay it off as quickly as possible. Here ares some strategies to help you pay off debt fast.
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Why should you pay off debt?
If you are in debt, you might be thinking “Why should I pay it off?” and the answer is simple — because paying off debt helps you save money. Furthermore, you can avoid the risk of another financial setback. If you do not pay off your debt, the interest you owe will continue to go up and up each month. This means that there will be less money left over each month to save.
How to pay off debt fast:
Paying off debt can seem like an unattainable goal. However, there are several ways to start paying off your debt. You could find personal loans with low interest rates to pay off your credit card balances, stop using your credit cards and pay them off, make extra payments, consolidate or settle your debt, and more.
To start, change your behaviors
Do not take any action to pay off debt without evaluating the behaviors and action that got you here in the first place. Some of the things that got you where you are with debt is just your way of thinking, your beliefs, or simple habits that you might not even realize you had. For example; thinking that you will have enough time to pay the debt off, or a habit of purchasing things that you want vs need with a credit card. Another reason people fall into debt is by using credit cards the wrong way; like if it was an emergency account.
Do’s and Don’ts of paying off debt
- do write clear goals of what you want to achieve
- do not use credit cards to purchase your wants you can’t afford
- do use credit to leverage your money; buying a house, starting a business, avoiding taxes
- do not use credit cards as an emergency fund
- do use credit cards to pay for needs expenses and pay the balance off each month
- do not use debt to live a lavish life
- do not take out another loan or credit cards, unless you can absolutely afford to pay off the balance at the end of the month. (businessinsider.com)
- only use credit to achieve your higher financial goals: buying a house, a vehicle that you need but not that you want, or as leverage for money you already have.
- Set up payment reminders and keep track of bills and pay them in less time. (wellsfargo.com)
- Dipping into your retirement accounts. Borrowing from your IRA or 401(k) to pay off debts is a bad idea. (foxbusiness.com)
Debt Reduction Strategies
There are a few different ways you can reduce your debt apart from paying debt off. The first one is to reduce your interest rate.
Reduce Your Interest Rates:
Call your credit card company and request to reduce your interest. Mention how you have been a good payor. Even 1% reduction of interest rate will help in the long run.
Snowball or Avalanche your Debt:
These two are strategies to help you organize your debt into a more simple repayment structure. To start any of these methods, first develop a personal budget and decide the dollar amount available to pay off your debts. Which method you use depends mostly on your objectives and level of discipline when it comes to money and your personal finance. Take a look at these 2 methods:
Debt Snowball :
The debt snowball is designed to help you pay the debt faster, and must be used for someone with lower levels of discipline. If you feel you are a spender rather than a saver, then this method is for you.
- Step 1: Organize your debts; auto loan, other loans, and credit cards balances from smallest to largest.
- Step 2: Pay all your debts with minimum payments except the debt with the lowest balance.
- Step 3: Send the largest payment you can afford to the smallest debt.
- Step 4: Each month do the same until each debt is paid in full.
You will notice that your monthly payment with the snowball method will motivate you into sticking to the process because by you sending the biggest payment to the smallest debt, it will help you pay it off faster.
The debt avalanche is a strategy that helps you pay less credit card interest overtime, but should be used by someone with higher levels of discipline. This method is for you if you know you are a saver rather than a spender.
- Step 1: Make a list of your debts; loans and credit cards and it’s interest rate.
- Step 2: Pay all your debts with minimum payments except the debt with the highest interest.
- Step 3: Send the largest payment to the highest interest debt.
- Step 4: Repeat this process every month until each debt is paid in full.
Notice that with the debt avalanche method you may take longer to pay your debt, for example if the highest interest debt is also the one with higher balance. However, this method will save you more money in the long term than the debt snowball. Because you may take longer to pay off your debt, only use this strategy if you are discipline with your money and personal finances.
Consolidate your debt:
Apply for a debt consolidation loan. A debt consolidation loan is a personal loan specifically issued to pay off your debt. The benefit of a debt consolidation loan is that you will pay off all your credit and loans, and stay with only one lower interest loan. Make sure the interest on the new loan is in average much lower than all the debt you are consolidating. Alternatively you can use a balance transfer credit if you qualify for a 0% credit card; but be discipline and pay off the transfer credit card fast.
Settle your debt:
Debt settlement allows you to reduce your monthly debt payments by re-negotiating your older debts. It ca be a great option if you find yourself in a situation where you are unable to pay off all of your debt. It might be the last resort; but is typically an alternative to avoiding bankruptcy. Make sure you understand that debt settlement is different to debt consolidation and it will likely result in lowering your fico credit score – at least temporarily until you start to rebuild your credit.
There are 2 ways to settle your debt:
- DO IT YOURSELF: Debt settlement is a popular and effective way to get rid of some of your debt. It is the process by which you set up a repayment plan with your creditors, and agree to pay them in exchange for the partial forgiveness of your debt. However, this typically only works with debts that you are behind on.
- DEBT SETTLEMENT COMPANY: There are some companies that provide debt settlement as a service, but they do collect fees to do the work for you. Some states and federal laws prohibits them from collecting fees before they settle an account, although they may start collecting your debt payment and storing them in an escrow account. There are many concerns regarding the practices of debt settlement companies; so make sure you first talk to your financial professional.
Make more money, save more money, and pay off debt fast
It goes without saying that earning additional income can be the best strategy to pay off credit card debt fast, but is it?
How many times you heard someone say?, “if I could only make more money then I would be able to save more money”. But when they do earn more money for whatever reason, instead of saving more, they spend more. The same happens with debt, you making more money will not instantly help you get out of debt faster. You must first make sure you work on your on yourself, your mentality, and habits in order to change the behaviors that got you here in the first place.
In order to successfully make more money, save money, and pay off debt fast, take the help of a financial professional, a coach, an advisor, and several tools that can keep you accountable with your personal finances. Many tools and help is available for budgeting, getting out of debt, organizing your finances, and saving your money.