Curious to know how to pay off debt quickly? We got you!
Debt can be a godsend in cases of emergency, but it can also be a major burden. If you’re struggling to clear your debt, there are some steps you can take to get out of debt more quickly.
- Pay off the debt with the highest interest rate first while still continuing to pay the minimum on your other debts.
- Never take on new debts while trying to pay off old ones.
- Making a budget is probably the best way to get out of debt quickly.
- You should consolidate your debts in case you have multiple debts.
How To Pay Off Debt Quickly?
There are a few important things to do if you want to get out of debt quickly:
1. Prioritize Clearing The Debt With The Highest Interest Rate
If you have multiple debts, it’s important to focus on paying off the one with the highest interest rate first.
You should continue paying the minimum on your other, less costly debts throughout this repayment method but focus your additional income on the most expensive debts.
By paying off the highest-interest-rate debt first, you’ll save money in the long run because you’ll pay less interest overall.
Also Read: Cheapest Way To Get Out Of Debt
2. Don’t Take Debts Again
Never take on new debts while trying to pay off old ones. This will only worsen your financial situation and make it take longer to get out of debt.
If you are going to find yourself back in debt after all of this hard work, it’s no use putting yourself through the stress and anxiety of getting out of debt in the first place.
3. Make A Budget
Making a budget is probably the best way to get out of debt quickly. When you have a budget, you know exactly how much money you have to work with each month and can plan accordingly.
If you have plenty of debt, your budget must be especially strict. You may need to cut back on your spending and live a more frugal lifestyle until you can pay off your debts.
Here are some valuable tips for creating a budget:
- Start by knowing your income, and this is the money you have coming in each month from your job, investments, and other sources.
- Next, list all of your expenses. This includes anything from your rent or mortgage payment to your grocery bill to your car payment.
- Now that you know the amount of money you have coming in and going out each month, you can start to make adjustments. If your expenses are more than your salary, you must find ways to cut back on your spending.
- Once you have created a budget, abide by it as much as possible. It may be difficult to change your spending habits, but staying on track is important if you want to get out of debt.
4. Increase Your Side Income
If you have some extra income coming in each month, you can use it to pay off your debts more quickly. Side income may come from a part-time job, freelance work, or other sources.
No matter where your side income comes from, be sure to put it towards your debts so that you can be out of debt more quickly.
There are a few different ways to do this:
- Start a dropshipping business
- Offer services online
- Do odd jobs
- Invest in real estate 1
5. Have Negotiations
The last thing that you could do if you can not pay over the minimum and whatever you do, you are still late with your payments is to go and talk to your lender and offer them a better way that would give both you and them a win.
It could be combining the debts together with a lower interest rate or paying a percentage of the entire loan in cash and agreeing for them to close the debt altogether.
Anything could work as long as both of you get something in return.
6. Don’t Just Pay the Minimum
The biggest mistake that many people make, especially with debts like credit card debts, is to pay the minimum.
Paying the minimum does not change anything, as your debt stays somewhat similar to the interest rate you are accumulating due to late paying.
For this, you need to cover the minimum; anything over the minimum works wonders, and you should put more towards paying off your debt until it is gone, except if it is a big debt like a mortgage.
However, you should prioritize paying more than the minimum for debts like credit card debts.
7. Start an emergency savings account
Life is full of surprises, and you never know when you will have to cash out a huge chunk of money for that expensive car repair or unemployment, medical condition, etc.
Such situations are often the main culprits that put you in huge debt. So start an emergency savings account and accumulate at least six months’ worth of your living expense.
8. Delete Online Shopping Apps
A lot of people shop aimlessly online for things they don’t even need. Credit cards and online shopping apps are a deadly combination that can put you in debt before you even know it.
So get rid of online shopping apps along with minimizing the use of your credit cards to avoid getting into debt in the first place.
9. Don’t go back to your old habits
Once you create a new habit of spending less, being mindful about your spending, using your credit card less, etc., make sure you stick to them for life.
A lot of people go back to these habits as soon as they achieve their goal, and before they know it, they end up accumulating debts again. So the key is to stick to your good new habits for life. 2
Debt Repayment Strategies
Here are few strategies that you can choose from to pay your debt faster:
1. The debt avalanche
In this method, you order your debts by interest rate and start paying off the debt with the highest interest rate first while still making minimum payments towards debts with lower interest rates.
This method helps in cutting the amount of interest that you pay over time.
Suitable for: This method is suitable for those who are paying a lot in interest and wants to save on that.
2. The debt snowball
This method is the opposite of the avalanche method. In this, you pay off your smallest debt first while still making minimum payments on your larger loans.
Follow this up by putting any extra cash that you may earn towards your next largest debt. Repeat the method with other debts.
As you start freeing up your debts, you will be able to put more money toward your other debts. Also, you will feel more motivated to keep paying off your debts.
Suitable for: This strategy is suitable for those who want to experience quick gains and want the motivation to keep going.
3. Debt consolidation
If you have several debts, consolidating them can save you money on interest and make it easier to keep track of your payments.
There are multiple ways to consolidate your debts using debt relief companies and their programs, so be sure to talk to a financial advisor to learn what’s best for you.
Suitable for: This method is suitable for people who want to end their credit card debts and get out of debt faster.
4. Debt management plan
In a debt management plan, you hire a credit counseling agency that will negotiate with your creditors on your behalf.
They will convince them to lower your interest rate or monthly payments or to forgive a part of your debt. This method lowers your credit score and also entails a service fee.
Suitable for: DMP is suitable for those who are struggling to make monthly payments toward their debt. 3
Paying off debt may seem daunting and impossible, but it’s important to remember that you can do it.
By following the tips mentioned above, you can get out of debt quickly and start working towards a brighter financial future.
How are three best ways to pay off your debt faster?
The three simplest ways to pay off your debts faster are by:
- Paying an extra EMI towards your loan.
- Increasing your EMI by a minimum of 10% each year.
- Putting in any extra money, you earn towards your debt first.
How to start an extra income source?
Here are a few side income ideas for you:
- Sell digital art online
- Do pet/house/babysitting
- Rent out your room
- Start your own blog
- Write & sell an e-book
- Make a course on what you are good at and sell it, etc. 4
Is it necessary to use a debt repaying stratergy to pay off your loans?
While it is not necessary to use a debt repayment strategy, it can certainly help you in repaying your loans faster.
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.
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