How to Pay Off Debt and Get On With Your Life
Debt is no fun. Even being just a few hundred dollars in the red is uncomfortable. As somebody who has experienced it, I know how difficult it is to pay off debt and how easy it is to slide back into it. The good news is that once you establish good habits it’s easier to stay out of debt. When you don’t have to pour all that extra money into balances you’ve already accumulated, you find your savings grow. That’s really exciting.
If you’re like me, you’ll tell yourself “I only have to make XX extra for XX time and then I’m done,” but what will happen, is you will see that financial growth and want to keep going. The first step is eliminating that debt that’s holding you back. You can pay it off slowly or quickly depending on your methods. Here are nine effective ways to pay off debt that you can start doing today.
Pay More than the Minimum
This is the first step to paying off debt. As simple as it sounds, if you don’t do this, you’ll be looking at that outstanding balance for a really long time. The more you are able to put into your payments the quicker the debt will be paid off. Unfortunately, with interest, your outstanding debt could stay stagnant and go nowhere if you aren’t putting enough into it each month. You may need to free up some money somewhere to afford the extra payment, but until you do, that debt is going to remain. Even a little bit more per month will move you in a positive way, but finding ways to free up, or even make more money to put down towards your payments is the key to getting out of debt more efficiently.
Don’t Add to It
Another thing you need to do to get out of debt is to stop spending money you don’t have. Don’t accumulate new debt while trying to pay off old debt. For many of you, this will result in a Spending Fast. If you are living on credit, you will have to find a way to free yourself from that cycle. Part of that means you have to stop spending money on things you only want but don’t need. That will at least slow down your accumulation of debt as you struggle to gain a handle on it. Find money by reviewing your statements and consider ways to make more money, at least on a temporary basis.
Negotiate a Smaller Balance
If you are really in deep and can’t afford to pay off a line of credit, call the company and ask to negotiate the balance. You may be able to work with the company’s legal team to get a new deal to pay off less than what you owe. There are companies that negotiate balances on your behalf and will charge for the service, but you can do this on your own. It doesn’t take long to save yourself a bundle of debt. You will establish a new payment plan with an end date. Be aware that you will lose the account if you go this route, but getting out of debt is totally worth it.
Negotiate Lower Interest
Another thing you can negotiate is lower interest. This is harder to do than reducing the balance because it’s all based on creditworthiness. If you are in a position of debt you may be at a low point on your credit score. However, if this is not the case, you can potentially get your interest rate lowered. What makes this effective is that each month a little bit more money is added to your balance. You may pay $50 on a $500 balance and instead of the next statement showing $450, it shows $465. That’s the effect of the interest rate. lower interest means faster payoff. That’s why it’s always worth a shot.
Trade for Lower Interest Debt
Borrowing money to pay off debt might seem counter-intuitive, but the big X factor is that nasty interest. If you can trade one debt with high interest, for another with low interest, then you are in a better position to get out of that debt faster. One example of a lower interest debt could be a home equity loan or an auto refinance. These types of loans can be roughly 25%-33% the current interest you are paying. take the loan to pay off the high-interest debt and then tackle the more manageable debt instead. It’s just another way of managing that extra margin of income that doesn’t seem to do anything when you apply it to those high-interest balances.
Transfer Your Balance
A similar plan to taking a low-interest loan is to simply transfer a balance to a lower-interest card. Make sure the interest rate applies to balance transfers when you do this. Some credit cards offer a 0% introductory rate on balance transfers, so you can buy yourself some extra time with no interest payments at all. When you do this, it’s important to know what the introductory period is and what the interest will be at that point. do the math to see if you can eliminate the debt by the end of the 0% introductory period. If you can do that, you will save yourself a lot of money and establish a timeline for getting out of debt.
Snowball Your Payoffs
Please note: I recommend the Avalance Method below over this one.
One method of tackling multiple debts is to start small and roll the payments over after eliminating each balance from smallest to biggest. This is not the fastest or the most efficient way to get out of debt, but people like it because they can see that $0 balance and it motivates them to move forward. It starts out easy and remains manageable as the accounts you pay off become bigger and bigger. It’s a slow way to go and you technically lose a lot of money in the process due to interest rates, but it’s methodical and measurable to an extent.
Avalanche Your Payoffs
Please note: This is the method I recommend for paying off debt. Find out more about why in my book, The Spender’s Guide to Debt-Free Living.
The preferred way to pay off multiple debts is to first tackle high-interest debt that is hurting you the most. You want your payments to count and high interest works against that, so the more you can put into it right away, the less that interest can hurt you over time. As the balance goes down, you can see that the interest rate, which is a percentage of the outstanding balance, has less of an increase. getting the high-interest balances out of the way first is like an avalanche that destroys debt at an accelerated rate.
Borrow Money You Don’t Have To Pay Back
A final way to pay off debt that you might consider is borrowing money from investments. If you have life insurance, for example, you can make some money out of there to pay the debt. You can also take money out of your 401-K if you have one. These kinds of assets are a valuable resource if you really need the money now. But this should be a last resort. Life insurance is not a retirement plan and chances are, you are paying into it for a very important reason. 401-Ks are for retirement, but either way, you should use caution because you are essentially borrowing from yourself and that’s usually not a good thing.
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