Last Updated on May 21, 2021 by MoneyVisual
Getting out of debt is difficult, especially for people who don’t have enough funds to invest there. You can pay off your debts when you’re broke, but for that, you may need to make a few financial changes in your life.
Nearly half of households in the US carry credit card debt, and the average amount of that debt is approx $10,000. As per the credit bureau Experian, the average American carried $6,354 in credit card debt and for other debts, the number is more than $24,700. The average student loan is also high, as per Experian it is $34,144.
As per a Pew Research study, more than half of Americans normally spend more than what they earn every month. So it’s the core reason why so many people are struggling with their huge debts.
So, practically, debt sucks and makes it impossible for people to invest in other sectors and earn a profit. Debt is the most enormous obstacle that keeps us away from living our dream life.
That’s why it’s important for you to get out of debt fast so that you can save a decent amount and use that money for investing.
How to Get Out of Debt Faster
To get out of debt faster, you need to make a plan and execute it properly. Below I will describe a few effective ways to pay off debt faster and leave your financial trauma behind.
1. Gather the Data ASAP
To become debt free soon, you must know where you stand right now. To get a complete picture of your finances, here’s what you need to do:
- Collect your most recent credit card bill statements and all loan statements, including student loans.
- Fetch a copy of your credit reports, so that you can check the accuracy and identify all the debts.
- Check your credit score. You must find out whether you’re eligible for a low-interest personal loan to lower your interest rates for all the debts.
2. Prepare a List of Debts and Income
Once you got your data, prepare a list of all your debts in the following manner:
- Name of the creditor or lender
- Total balance
- Minimum monthly payment
- Interest rate
Next, list the minimum payment you need to pay in order to pay off the debt balance within the target time frame.
Remember to add family loans, medical bills and other additional bills, such as groceries and utilities.
3. Create and Follow a Bare-Bones Budgeting System
If you really want to pay down debt faster, you’ll need to create a strict budget plan and start following it. A proper budgeting system may help you to cut off your unnecessary expenses totally.
One tool may become handy, it is called a bare-bones budget. With this system, you’ll be able to cut your expenses as low as they can go, and you may carry on with that little expenses as long as you can.
4. Pay off your High-Interest Credit Card Debts
A high-interest credit card will grab the most amount you are paying towards the interest payment compared to the principal balance. So, focus on reducing the high-interest credit card debts and limit the interest payment.
Once you have paid it off, move onto the next credit card debt with the next highest interest rate. This is one of the most popular DIY debt relief methods, called the debt avalanche method.
You may apply the same approach with a small modification. Instead of high-interest rate, focus on the smallest amount of debt. This method is called the debt snowball method.
5. Pay More than the Minimum Payment
Whether you’re having huge credit card debt, mortgage, personal loans, or student loans, one of the best ways to pay them down sooner is to make more than the minimum monthly payment.
By doing so you may be able to save a lot of interest payment throughout the life of your loan. You may also speed up the payoff process by paying off the main principal balance. Just make sure, your creditor or lender does not charge any prepayment penalties on you due to this arrangement.
6. Consolidate Credit Card Debt
You can consolidate your credit card debt by taking out a personal loan that you can pay within 3-7 years. Make sure you choose a personal loan lower than your current credit card interest rate. This loan can also be called a debt consolidation loan.
A debt consolidation loan is an excellent method to save on interest payments. Apart from that, you may reduce the number of monthly payments through this loan.
7. Opt for a Balance Transfer Card
To save interest on the high-interest credit card, you may transfer all the credit card balances into a new balance transfer card. The credit card provider normally offers you an introductory 0% APR. This offer may be valid up to 12 months or more, as per the credit card company’s policy.
So, you must take advantage of that time limit and start paying off the balance without spending any money on interest. Make sure you pay off the entire balance before the introductory period ends.
8. Refinance your Student Loans
By refinancing your student loans you may combine your federal and private student loans into a new single loan. The loan interest will be lower than your current student loan interest rate.
You can choose a fixed or variable interest rate as per your preference or affordability. The loan term might be ranging from 5-20 years.
9. Refinance your Mortgage
You can refinance your 30-year mortgage to 10-15 year loan. The longer loan term may give you enough time to pay off the mortgage. But it will also take out much more interest than a 10-15 year loan through that long 30 years.
Shorter-term loans will give you a shorter time to pay off the money. But with a lower interest rate, you are able to save a lot more than long-term loans.
10. Find Ways to Increase your Income
If you increase your income, it’ll help you to avoid the usage of credit cards to make ends meet. You’ll have enough funds available to put towards your debt.
You can increase your income by taking on a part-time second job, doing online work for websites, selling unused or old things on eBay or Craigslist. Apart from that, you can use your creativity and make money from a hobby, or simply by writing content for websites.
Do you like kids? Make babysitting your side hustle. These kinds of side ventures offer a lot of flexibility and peace of mind that a traditional part-time job doesn’t.
No matter what type of debts you have, credit card debt, student loan debt, mortgage, car loans, or others, there’s always a way out if you look closely. By following the above-mentioned ways you can actually save a lot from your debt payments. Any one of these strategies can help you get out of debt faster and save money not only for investing but also for emergency purposes. The faster you get out of these debts, the sooner you can start investing in a successful financial future.