While most people have some sort of debt, you want to keep your debt load to a minimum. If you borrow more than you can afford to repay, it could hamper your ability to save for retirement, buy a house or otherwise secure your financial future. What are some steps that you can take to get out of debt as soon as possible?
Determine Which Debts to Pay Off First
Paying down debt occurs fastest when you have a plan and stick to it. Most people either choose to pay down debts with the lowest balances first or debts with the highest interest rates first. Paying down small balances can give you a sense of accomplishment and make it easier to tackle those larger debts. However, paying down debts with higher interest rates first saves you money in the long run. Generally, your strategy will depend on how much you can afford to set aside each month and what your debt repayment timetable looks like.
Make Payments on a Biweekly Basis
One of the easiest ways to repay a debt faster is by making extra payments. One of the easiest ways to make extra payments is to pay your bills on a biweekly basis. What this does is forces you to make half of your monthly payment every two weeks. This equates to 26 payments over the course of 52 weeks or the equivalent of 13 monthly payments. In addition to getting ahead on your principal balance, you will pay less interest over the life of the loan.
Consolidate Your Debt Into One Monthly Payment
If you have several high interest credit cards or other loans that you are struggling to keep up with due to high interest rates, it may be worthwhile to consolidate. This may be done by taking out a personal loan, executing a credit card balance transfer or taking out a home equity loan.
The personal loan or balance transfer is used to pay off your existing debts. Then, you pay off your consolidation loan according to whatever agreement you made with the lender. According to Consumers Alliance Processing Corporation, consolidation loans are effective ways to pay down debt because you may get a lower interest rate, which means you pay less each month. They may also be preferable because they have a defined repayment period, which may keep you focused on your financial goals.
Reduce All Unnecessary Spending
Paying down your debt becomes much easier when you stop throwing money away on things that you don’t need. For instance, you can get rid of your cable package and get an antenna for your television instead. You can combine that with a subscription to Hulu or Netflix to make sure that you don’t miss any of your favorite shows. It may also be a good idea to start making food at home or drinking water instead of buying soda or coffee. Even if you only save $5 or $10 a day, that could add up to an extra payment per month or add up to a tangible amount to put in your savings account.
Find a New Source of Income
Meeting your debt repayment goals is generally an easier task when you are making more money. Therefore, it is in your best interest to find a second job, find a new investment strategy or otherwise find ways to increase your monthly income. You can then put this extra money toward your debt or use it to fund your retirement or other long-term goals. For some, knowing that they aren’t sacrificing long-term goals helps them to remain calm and patient when repaying debt over long periods of time.
If you are struggling to keep up with your debt payments or simply want to keep more of our money, it is time to figure out how to quickly pay down those remaining balances. By getting a second job, cutting back on spending and having a coherent strategy, you can get your debt under control and gain a sense of financial independence.