Studies show that most of us spend more than we earn and use credit to fill the gap. This is an unhealthy way of managing your finances. It is easy to see why so many people are struggling with debt and why many choose to bury their head in the sand. A lot of people do not have any plan on how they will repay the debt and if a disaster strikes, they will have to face the circumstances head-on. An illness, a job loss, or home repair can put your finances off track and put you into trouble. You should not have to wait for a disaster to decide that you no longer want to struggle. Becoming debt-free is possible and it is the only way you can take control of your present and the future. Here are a few ways you can get out of debt faster.
- Always pay more than the minimum
No matter the credit card balance you carry, you must always make the minimum monthly payment and add a little more to it. Do not continue to add more balance in the meantime. Whether you have student loans, credit card debt, or a personal loan, the best way to pay it sooner is to ensure that you make more than the minimum monthly payment. It will help save on the interest and will speed up the repayment process.
2. Go from large to small
Also known as the debt snowball method, you need to list all the debts you owe from small to large. Now set your excess funds at the smallest balance and make the minimum payment on the larger balances. The smallest balance will be paid off and you can then put the extra money towards the next smallest debt. It will speed up the process and add momentum. It has a strong psychological effect and will let you log a few wins. Ultimately, the goal is to add all the extra dollars to your debts.
3. Create a budget
The best way to pay debt faster is to cut down on expenses and you can do this by creating a budget. If you cut the expenses to a minimum, you will have more money to pay for the debt. Create a budget that works for you and try to cut down on all the unnecessary expenses. As you live on a strict budget, you will be able to pay more towards the debts. Once you are out of debt, you can add the discretionary spending back to the plan.
4. Negotiate with the lender
Depending on the type of debt you have, you can negotiate with the lender. If you have a mortgage loan, you may want to consider a reverse mortgage to raise cash on your home. Use a reverse mortgage calculator to get a better idea. If the credit card bills are high, consider calling the card issuer to negotiate the terms. It is common to ask for help from the lender and if you have a solid repayment history, there is a strong possibility of getting terms that fit your needs.
5. Consider a balance transfer
If the card issuer does not negotiate on the interest rates, you can consider a balance transfer. It is possible to get a 0% intro APR for about 18 months through balance transfer. However, you will have to pay the transfer fee for the privilege. If there is a credit card balance you can pay off within the time frame, it is best to consider balance transfer and save on the money on interest while paying down debt sooner.
6. Use the bonus to pay off debt
A lot of people get an annual raise, a bonus at work, or an inheritance. Before you start planning on how to use the money, you can use it to pay your debt. If you are counting on a big tax refund, you can use the money to go debt-free. It can go a long way in helping you get out of debt. Whenever you come across any unusual source of income, use the dollars to pay off debt.
It may seem difficult, but it is not impossible to go debt-free. If you plan well and allocate the money efficiently, it is possible to pay the debt sooner. You just need to ensure that there are no prepayment fees on the loan. No matter the type of debt you have taken, use these tips to pay off a large chunk of debt. Try to cut down on spending habits and avoid unnecessary expenses. Once you have paid all the debt, be wary of how you earn, spend, and borrow money. You do not want to end up in the debt trap again.