6 Strategies To Pay Off Debt Fast
Once you’re aware of your financial situation, you can try any of the following strategies to help you pay off debt fast.
1. Increase Your Income
The more money you have to put toward debt, the higher the chances you’ll pay it off faster. You can decide where to put the extra money you earn, whether it’s toward your personal loans or credit cards.
Some ways you can increase your income include taking extra shifts at work, negotiating for a higher salary at your current job or starting a side business. If you have the means, you can also consider taking on a second part-time job temporarily to increase your income.
2. Spend Less
The less you can spend, the more of that money can go toward your debts. To see where you may be able to cut back, look at your current spending to see any areas you can tackle. For instance, you can consider cutting back on eating out or unused subscriptions – Rocket MoneySM makes it easy to see all your spending in one place, and they’ll even help you cancel your subscriptions. Keep in mind that it’s not useful to totally cut back on all nice to haves – doing so can cause you to rebel and spend more, which defeats the purpose.
3. Tackle Highest-Interest Debt First
Paying off the debt with the highest interest first can help you save money over time by paying less in interest. This method is also referred to as the debt avalanche method, where you make more than the minimum payment toward your highest-interest debt, and make sure you stay current for all other ones. Once the highest-interest debt is paid off, you take the next highest-interest, and so forth until they’re all paid off.
4. Prioritize Your Highest Monthly Payment
If you’re looking to get approved for a loan in the near future, one thing you can do is work toward paying off the debt with the highest monthly payment, also known as the snowball method. The key reason for this is that DTI is based upon monthly payments, so any big amount you can eliminate from your monthly debt reporting will be extremely beneficial.
The downside of this is that you might end up paying more in interest if you have balances that include a higher financing charge.
If you decide to go this route, you’ll start with the smallest balance and then put as much money as you can toward it in order to pay off the loan while keeping current on all other debt. Once that’s paid off, you move on to the next largest balance and your payoff journey keeps gathering momentum and eating up more debt just like a snowball rolling downhill.
5. Consolidate Your Debts
Debt consolidation is where you take out a new loan and use the proceeds to pay off your current ones and you’re left with one loan payment. The main advantage is that it simplifies your payments. Plus, if you get approved for a debt consolidation loan with a lower interest rate, you can save money on interest charges and have a lower monthly payment.
6. Consider Debt Relief
You may be able to call your creditors yourself and ask if there is some form of debt relief program you can take advantage of, or you can enlist the help of credit counseling agencies. Many of these are nonprofit organization are designed to help you create a debt management plan so that you can implement a strategy that works for you. Be wary of debt settlement companies that offer to negotiate with your lenders on your behalf. Many may ask for upfront fees or won’t deliver on services it promises.
