Debt can be a huge stressor in your life and prevent you from achieving your financial goals. It can seem like an insurmountable mountain to climb over. Whether it is credit card debt, student loans, or auto loans, we all would love for a way to pay it off faster so we can achieve our financial goals and, perhaps live a more stress-free life. In this article, we outline seven tips for paying off debt faster so you can reach your financial goals.
Pay More than the Minimum Payment
In 2015, the average credit card balance in the U.S. was $15,609. Let’s say you carry that balance on your credit card, and you pay a typical 15% APR. If you only make the minimum monthly payment of $625, it will take you 13.5 years to pay it off. That fact alone can make paying off debt a daunting task. That's also assuming that you don’t add to the card balance during that period.
Regardless of the kind of debt you carry (e.g., credit card, student loans, etc.), one of the fastest ways to pay off debt is to pay more than the minimum payment. Doing this creates a long-term benefit by decreasing the amount of interested applied to your loan during its lifetime and helps you speed up the payoff process. This means any extra money or funds you have at the end of each month should be dedicated toward paying more than that minimum monthly payment.
If you need help to track your payments and how much to spend, there’s plenty of free online and mobile debt repayment tools available. For example, Tally, Unbury.Me, or ReadyForZero are all tools that can help you track your progress as you pay off your balances.
Stop Using Credit Cards
If you want to pay off your debt and stop increasing it, one of the easiest things you can do is to stop using your credit card. If you’re not using it, then you can’t acquire more debt. Using your credit card not only increases the balance on the card it also increases the interest on the card and, thus, increases your overall debt. If you need to, you can go to the extreme of cutting your credit card or freezing it in a cup of water. For most, though putting it in the back of your sock drawer instead of your wallet is a great way to ensure that you won’t use it.
Make Cuts to Your Spending
Making cuts to your spending and using that money to pay off your debt is another strategy for paying off debt. This requires sitting down and taking a hard look at what you’re spending your money, then taking a hard look in the mirror and deciding what things you can do without.
This most likely means eating out less, making fewer trips to the coffee shop, and maybe shopping in the clearance section instead of the new releases section of clothing stores. And that daily latte you get? That’s something you could probably go without. Other things you can consider cutting out are cable television, Netflix, or other entertainment expenses that aren’t part of your necessities such as food and shelter.
At first, it will be hard to make these kinds of lifestyle changes but remember, these are only temporary. However, once you pay off your debt, you can then redirect funds to have these as part of your lifestyle again.
Figure Out a Strict Budget
Besides making cuts to your spending, one thing you can do to start paying off debt is to figure out a strict budget and living within it. Granted life happens; emergencies come up like home repair, auto repair, or medical expenses. And you need a way to pay for those things. This is why it’s important to have an emergency fund, even a small one, incorporated into your budget so you can pay for these things without increasing your debt.
Creating a strict budget you can live within means looking at how much money you have coming in (i.e. your income after paying for taxes and retirement). It also involves looking at how much you have to pay in necessary expenses. The keyword there being “necessary.” This means things like your mortgage or rent, electricity, water, groceries, etc. In other words, it includes the things that provide you with the necessities of food and shelter. Once you have the number for how much money you have coming in and how much is going out, any extra funds should be directed toward paying off debt.
Taking it a step further, you can specify how much money you allow yourself to spend on specific things like groceries, eating out, entertainment, etc. In other words, it’s time to do for yourself what your parents did for you when you were a kid: give yourself an allowance and don’t spend beyond it. Paying off debt isn’t going to be easy but setting yourself up with a budget can help keep you on track toward meeting your goal.
Get a Second/Side Job
You made some cuts, you set a budget but what happens when you do the calculation for the money coming in and you find it’s not enough? Then it might be time to consider finding a second job or some sort of side job. Second jobs could be working as a barista at your local Starbucks or grabbing a seasonal job when the holidays come around. During the holiday season, retailers are always looking for seasonal workers who can keep their stores operational during the busy holiday season. If you are willing and able, then this could be a great way for you to grab some extra income that you can dedicate to paying off debt.
Do you have a special talent or skill? Have you considered doing freelance work to earn money off it? Whether it’s babysitting, mowing yards, cleaning houses, writing, tutoring, or becoming a virtual assistant there are lots of ways to earn a little side money you can put toward paying off debt. Websites like TaskRabbit.com and Upwork.com make it easy and convenient for anyone to find freelance work that you can do outside of your day job, earning them extra money to pay off your debt.
Second job or side job still not enough? It might be time to ask for a raise at your current job or consider moving to a different company or position where the pay is more. Investing in yourself should always be your number one priority so if your day job currently has you in a position where you’re not experiencing professional growth or pay growth, then it might be time to consider other options. Moving up to a new position with more pay can help you in paying off debt and help you increase your professional skills so you can become a better employee.
Sell Things That You Don't Need
You know all that junk you’ve been storing in the garage and the attic? That old couch that’s sitting in the backyard. The boxes of old holiday decorations you haven’t put up in years, Those old clothes from your college days that are collecting dust. Maybe it’s time to get rid of those things.
It’s not a sustainable option, but having a good ole fashion garage sale can bring in some extra cash that you can put toward paying off debt. It also comes with the added bonus of clearing out that extra clutter in your home. So pick up the latest book on living a minimalist lifestyle, make a list of things to sell, and start posting signs around the neighborhood.
Look into Debt Consolidation
Debt consolidation can be an easy way to manage all of your debt in one payment and, ideally, with a lower interest rate than what you’re currently paying. You’ll need good credit to qualify; but if you do, this option could be worth looking into.
Two options to consider are a 0% interest, balance transfer credit card or a debt consolidation loan. By having a lower interest rate, a larger portion of your payment can go toward paying off debt and allowing you to reach your financial goals faster.
Overall, paying off debt isn’t always an easy process, but it’s not impossible either. The key is to have a strategy and be diligent in its implementation. All the tips outlined in this article don’t have to be used in isolation and can be used in conjunction with each other. Remember that some of these changes are only temporary. After paying off your debt, you can reintroduce some of the luxuries you eliminated. Just be sure you don’t start the cycle over again. Make sure to only spend within your means, look your income and your budget, and use the habits you picked up from paying off debt to keep your finances in check. Now you've got the tips you need, time to start the hard work, but keep your eyes on the long-term goal and you'll achieve your financial goals.