Debt is something that most of us have. Debt can allow us to gain access to money when we are in need, then pay back the amount over a certain period. According to CNBC, consumer debt hit a record high of $15.6 trillion last year.
People between 40 and 55 have the most debt, recorded at an average of $140,643. Debt, however, is something that people can have as early as age 18.
When you are in too much debt, it can be tough to manage your finances.
Paying your debt off quickly is a great way to clear your name and live a debt-free life. You can use several strategies to pay off your debt faster than what your contracts stipulate.
Here are some steps you can take to pay your debt off quickly.
Prepare Your Finances Before Paying Off Debt
Before deciding how you can pay your debt off faster, you first need to understand your own finances. This is an important step, as it helps you get a clear picture of your current financial situation and allows you to set up a budget.
Start by considering how much income you get monthly. This can include sources like your monthly salary, extra commissions or wages, customer tips or even child support.
You also need to ensure you track your spending. This includes bill payments, rental fees, the money you use to put gas in your car and your personal expenses.
When you have a list of income and expenses, it is easier to create a budget that can be used to get a clearer picture of your financial situation. A budget is crucial when taking control of your finances and debt.
It’s always a good idea to also get a view of your credit report and scores. Credit monitoring services such as MyScoreIQ can help you obtain a credit report to show you your current debt-related situation and what to help focus on when paying off your debt.
Common Strategies for Paying Off Debt
There are different strategies that people use to pay off their debt. Here are some of most common.
The Debt Snowball Strategy
The snowball strategy requires listing out all of the debt you have. You then sort them by the total due on each account.
When you put extra money toward your monthly debt repayments, the funds go to the account with the lowest total due. This allows you to start tackling the smallest debt or credit card debt.
Your extra funds can be used to pay more than the minimum payment in your larger accounts.
The Debt Avalanche Strategy
The avalanche method has some similarities to the debt snowball method. Instead of focusing on the accounts with the least amount of debt left, you instead start with those accounts that have the highest interest rate.
This debt payoff strategy focuses on reducing the extra fees that are included in your repayment plans. Debt with the highest interest rate can incur the most extra fees.
Debt consolidation is also highly effective. It helps pay off the debt by consolidating your accounts into a single loan.
This can often help you save when you request settlement amounts from creditors. You can include student loans, a balance transfer you made, personal loans and other types of credit facilities in a consolidation strategy.
3 Tips for Paying Off Debt
With the strategies we shared in mind, you now have the knowledge you need to help pay off your debt faster. Here are a couple of additional tips that can also be helpful:
- Stick to a budget: Try to stay true to the budget you create. This ensures you do not have extra expenses that set you back at the end of the month.
- Reduce monthly bills: Try to reduce the smallest debts you have quickly. This can help to reduce your monthly bills. It also allows you to pay the extra funds you now have on loans with a high interest rate.
- Increase your income: Try to set up a side hustle to help you make extra money from home. This can include freelancing, consulting services or starting an e-commerce store. There are many options and solutions that you can look at. Alternatively, look at your inventory and personal possessions and note the belongings you no longer use. There might be something of value that you can sell – and that money can be used to pay off debt faster too.
When Will I Be Debt-Free?
No fixed answer can apply to this question. Every person has a unique situation regarding managing their debt and paying it off.
This is why a personalized approach is so important and why there is no fixed answer to when you will be debt free. However, with this said, following the right steps can make a considerable difference in how long it will take you to become free of debt.
You’ll need to consider your total debt and the payments you make toward clearing your debt to determine an approximate duration.
Debt can slowly accumulate and quickly become a hassle when you are trying to reach your financial goals. However, with the right strategies, you can work to get rid of your debt and enjoy a debt-free life.
Follow our strategies to help ensure you can pay off your debt quickly.