Debt can wreak havoc, not only on your finances but on your ability to borrow when you need to as well. Having a lot of debt can also create high levels of stress and be very difficult to get under control. The good news is that there are numerous ways you can make the progress you’ve been looking for and pay off your debts fast. Doing so will help you get into a better financial position quicker and alleviate much of that stress that debt can bring. Let’s look at ten ways to pay off your debts fast.
1. Always Pay More Than the Minimum
If you’re only making the minimum payment every month, you’re dragging out the length of time it will take you to get the debt paid off and potentially costing yourself huge sums in interest charges on the revolving balance. Take a good hard look at your budget and find areas you can cut back on to create space to pay more on your debt. Strive for at least double the minimum payment each month.
2. Consider the Avalanche Method
The avalanche method is the most effective for paying off your debt fast. This method focuses on paying off the highest interest rate debt first, followed by the second highest, and so on, while paying only the monthly minimums on the rest. Once the first debt is paid, take that monthly payment and add it to the next highest interest debt. Continue until each debt is paid off.
3. Try the Snowball Method
While not as effective nor cost-saving as the avalanche method, the snowball method is beneficial for those who need small psychological wins along the way or have multiple debts with low balances. Instead of targeting your highest interest rate debt first, with the snowball method you’ll target the lowest balance first. Once that balance is paid, you move to the next highest balance. This particular method also frees up cash flow quicker than the avalanche method, so if you need some proverbial financial room to breathe, this method could work well to pay off your debts fast.
4. Consider a Balance Transfer
If your credit score and income are high enough, you may qualify for a new credit card with a zero-percent-per-year introductory offer to transfer an existing balance. Credit card companies offer these kinds of deals to entice you to do business with them, but they also know many people won’t pay off the balance before the introductory offer expires. Regardless, many of these offers are 12 to 15 months long which can translate to enough time to wipe out the balance without paying any interest if you’re disciplined enough, or, at the very least, provide enough time to take a big bite out of the balance.
5. Apply for a Home Equity Loan
If you have accrued a large amount of equity in your home, a home equity loan may be an option to help pay off your debts fast. It’s important to note, however, that you can’t borrow your way out of debt. Using debt to pay off debt should only be done if you’re able to better the terms of by either lowering your monthly payment, reducing the interest rate, or both. With that said, home equity loans are a form of secured debt so they’re typically offered at much lower interest rates than credit cards. The interest you pay is also potentially tax-deductible depending on your tax situation, so if you’re a high-income earner, have good credit, and own your own home, a home equity loan can be a great way to pay off your debts fast.
6. Look at a Debt Consolidation Loan
Debt consolidation loans are personal loans that are used to pay off high-interest rate credit cards. However, you will typically need good credit and a strong income for this option to be beneficial. Like credit cards, personal loans are a form of unsecured debt, so the interest rates can still be expensively high if your credit is not good enough. The biggest benefits come from a fixed interest rate (as opposed to a variable rate with your credit cards), and the ability to reduce your utilization rate on your cards and bump your credit score as a result. The length of the loans are fixed as well, so if you have a three-year loan and you make all your payments in full and on time, you know you’ll be debt-free in three years.
7. Trim Your Budget to the Bare Minimum
Part of paying off your debts fast involves finding more money to put towards your debt. If you can’t make more money, your only other solution is to reduce your spending. Take a good hard look at your monthly budget and find areas you could cut back on. Many people don’t realize how many frivolous monthly expenses they have. That daily $5 latte may not seem like much day-to-day, and may even feel like a daily necessity, but that’s at least $150 per month that could otherwise be put towards debt. Focus your spending around necessities and only items and activities that add value to your life.
8. Pick Up a Side Hustle
If you have trimmed down your budget and realize you still need more money coming in to pay off your debts fast, consider picking up a side hustle to make it happen. The gig economy is stronger than ever now and there are numerous websites and platforms that make it very easy to make extra money. For example, you can rent out a spare bedroom in your home on Airbnb, or use your car as a ride share on Uber or Lyft. Get creative with skills or resources you already possess to help you make some extra money on the side to pay off your debts fast.
9. Consider Loans From Friends and Family
If you have nowhere else to turn and are desperate to get out of debt, family, and friends that have the means to lend you money may be a good option. Odds are your family and friends are likely to give you more favorable lending terms to help you out. Just make sure you honor your repayment terms so you don’t destroy your relationship with that person. Money can be highly destructive to relationships, so make sure you’re in a position to repay your friend or family member as promised and have enough trust established between you two so it does not become an issue.
10. Try to Renegotiate With Your Creditors
If you’re way in over your head with your debt and see no other option out other than bankruptcy, it may be time to talk to your creditors to see if renegotiating the terms of your debt is an option. Most creditors would prefer to collect at least some money in place of nothing at all, so if they believe you’ll never pay them back or can’t pay them back, they may be willing to negotiate a lower amount to reduce their losses. This renegotiation can be beneficial to you by reducing your amount owed, but it’s typically a very sour mark on your credit score and can take up to seven years before it’s removed, so debt renegotiation should always be done with caution. Make sure you understand your options and their potential consequences before proceeding.
When following the tips above to pay off your debts fast, it is imperative you also take the time to identify what caused the debt in the first place. The last thing you want is to pay your debts off and then quickly find yourself in the same situation again. Avoiding bad debt long-term means living within your means and establishing emergency funds should you ever lose your job or find yourself in a financial bind. Just as you set up a system to pay off your debts fast, you also need to set up a system to avoid accumulating debt. A good financial planner can be of great assistance in this regard, so if you need help paying down your debts or creating a plan to avoid them, schedule an initial call with us today to see what we can do for you.
Forefront Wealth Partners is an independent financial advisory firm that provides creative problem solving to our clients. In a world where change is accelerating and the future uncertain, we provide simplicity and confidence concerning financial, tax, and legal strategies. Our process involves a deep relationship, focusing on meaningful outcomes and dynamic planning.
The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.
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