Responsible lending and ways to pay off debt faster
If you find yourself deep in debt and you can’t handle the situation anymore, don’t worry, there are solutions. It doesn’t matter if it is a credit card, a loan, medical insurance or other taxes, debt can be reduced.
Before thinking of a way to get rid of debt, you must know what kind of debt you have to pay and how much money you owe. Keep in mind that not every sum of money that you owe means debt. For example, ongoing bills, like electricity, water and utilities, aren’t considered debt. Those are just variable monthly expenses. The same goes for things like insurance, taxes, groceries and childcare costs. However, the way you choose to pay these expanses could transform in debt, for example when using a credit card.
Non-mortgage debt includes:
- Student or car loans
- Credit cards
- Home equity loans
- Medical debt
- Payday or personal loans
- IRS and government debt
Basically, any money that you owe somebody is debt. Most people have been in debt at least once in their life. Unfortunately, a lot of us happen to be in debt pretty often and it becomes stressful after a while. The good thing is that there are a few steps which you need to follow if you want to pay off your debt faster. Here is a list of the recommended actions.
10 ways to pay off debt faster
1. Create a budget.
For the beginning, create a list that includes your monthly income, but also your monthly expenses. That way, you will see your earnings and your spendings, so you will be able to improve some aspects. Maybe you will notice that you spend a lot of money on something and you could spend less to save more money. You can start by reducing unnecessary expenses in other parts of your life and leveraging those savings on your loan. For example, start making coffee at home instead of buying from Starbucks. Add those savings to your loan.
2. Pay off the most expensive debt first.
If you have several installments, it would be indicated to sort them by value, descending. Therefore, not only will you make sure that a big part of the debt was paid off, but you also increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards.
3. Pay more than the minimum payment and change your loan term.
One of the best ways to pay off debt faster is changing your loan term. For that, you have to pay more than the minimum payment monthly. However, if you want to apply this method for the installments of a loan, you should check if there are any penalties for paying more before you proceed to doing so.
4. Try the debt snowball method.
If you afford paying more than the minimum payment, then you should consider using the debt snowball method for accelerating the process. After you put the debt list together, like we said earlier, you can start adding the extra money to the smaller debt. At the same time, for the bigger installments pay just the minimum. With time, the extra money will make smaller debt disappear faster. Afterwards, you will be able to add the extra cash to the most valuable installments instead of the smaller ones, which will be gone by that time.
5. Try the debt avalanche method.
The exact opposite of the snowball method is the debt avalanche method, which means paying the bigger installments first. The steps that you have to follow for this method to work are:
Always pay more than the minimum payment, no matter what type of account you own.
- Add more money to the account with higher installments, like a credit card.
- Pay the installments in order from most expensive to cheapest.
- Once you have paid the expensive ones off, divide the amount of money you were spending on them to pay the ones left.
6. Take advantage of balance transfers.
If you have a high-interest card with a balance that you're confident you can pay off in a few months, then try to move the debt to a card that offers a zero-interest balance transfer. This is like paying off one credit card using another card.
7. Try obtaining smaller installments when getting a loan and negotiate other bills too.
If you consider that the loan’s or the credit card’s installments are too big and you will hardly pay them off, try negotiating with the creditor. You will be surprised, but a lot of them are willing to make you offers, especially if you have a good payment history. Also, if you have an open loan, finding a lender with a lower APR can reduce expenses.
8. Use extra money to pay off debt.
If you receive a performance bonus or any other bonus at work, use that money to pay off debt. We know it is tempting to use it to go on a vacation or to buy something you have been dreaming of for a long time, but the faster you pay off debt, the more money you will have to spend however you wish.
9. Sell the extra stuff around the house
Maybe it’s time to give your house a little clean-up and see what you need and what you don’t need anymore. This is how you can sell the things you don’t use anymore (clothes, home appliances, jewellery etc.) in order to make more money.
10. Get a side hustle to increase your income
Also, if you have enough time, consider getting a second job, part-time either at a grocery store, delivery, Uber or online.