Everyone has certain financial goals, but debt can keep you from reaching them. Paying it off faster can help you get a head start on your monetary goals, whether it’s saving on the cost of borrowing, applying for new credit, or reducing your existing debt. Keep reading to learn more about the 7 best strategies to pay off your current debt quickly and without hassle.
Why we accumulate debt
Have you ever wondered why and how people get into debt? Every individual knows that debt can lead to negative consequences, causing us to lose our precious assets, destroy a relationship and incur even more debt if we cannot manage it. There are many reasons why people go into debt, some choices are driven by life circumstances, while others are choices that people make.
- Need. One of the main reasons Americans go into debt is to provide basic housing and food needs for their families. Thousands of people are trying to survive and make ends meet so that they can rely on no credit check payday loans instant approval to get extra funds till next pay day.
- Lower income. This is another common reason. Expenses begin to exceed income and the person risks falling into the debt trap. It is necessary to take immediate measures in order to stabilize the situation with your personal finances. If you can’t find a side hustle or other ways to increase your earning potential, you probably have to take credit for it.
- Limited savings. Few people have an emergency fund to protect against unexpected expenses. If you have a sufficient savings fund, you have a comfort zone to cover possible job loss, unexpected illness, divorce or any other urgent expense. Consumers without emergency funds often rely on credit options that inevitably lead to more debt.
7 tips for quickly paying off existing debt
All of the scenarios mentioned above make getting into debt common and easy. If you want to improve your budgeting and financial management skills and reduce your debt, here are the best ways and strategies to do so.
Determine your budget
First, it’s essential to understand your current income and expenses. This will help you understand why it’s hard to pay off your debts and how to pay them off faster. You need to have a monthly budget to check how you are spending your money. While you focus on paying off debt, you should also create an emergency fund.
Even a small portion of your income set aside in this account can keep you from going into debt once unexpected expenses arise. A great strategy is to follow the 50/30/20 rule. This means that a consumer must allocate 50% of their income to necessities (housing, groceries, transportation), 30% of their monthly income to vacation (entertainment, clothing, restaurant meals) and use the remaining 20% for reimbursement of debt and savings.
Stop using credit cards
If you stop taking more credit, it will be easier to tackle existing debt. One of the best ways to reduce debt is to stop using credit cards. Consumer debt reached $14.56 trillion in 2020, according to the New York Federal Reserve, while credit card loans totaled $820 billion. Don’t increase your current balance if you want to increase your credit usage. Remember that this figure must be less than 30% because it has an impact on your credit score. Borrowers who accumulate more debt will see their credit score below average.
Reduce your expenses
Impulse purchases can easily add up. When you plan to become financially independent again, your goal is to cut your expenses and count every dollar. You can stop ordering delivery and cook your own meals, write a shopping list before you go to the grocery store, and cut back on streaming services.
Also, buying designer clothes or an expensive cell phone is not the top priority for you these days as you have to focus on paying off the debt.
Boost your earning potential
One of the best strategies for tackling your current debt is to find a side hustle. Getting extra income is always beneficial as you will have more funds to use for your current needs.
A part-time job on the weekends or a few extra hours each evening can speed up the repayment of your debts. Search for legitimate jobs and side hustle on various websites and online platforms. You can become an Uber driver, sell your old stuff, or go freelance.
Try debt consolidation
Debt consolidation means that you consolidate many debts into one payment. This payment should come with a lower interest rate so that it is easier for you to manage and the debt becomes less expensive.
The less interest you have to pay, the more funds you can set aside to pay off your debt. It is relatively easy to qualify for a debt consolidation loan or a balance transfer credit card at 0% interest. However, a decent credit score is required to qualify for this option.
Find a suitable repayment method
Debt repayment is a psychological and financial commitment. You should find an appropriate repayment strategy to repay what you currently owe. A debt snowball method is one of the proper ways to fight debt. In this case, you must first invest additional funds to pay off the smaller debt.
Once that debt is fully paid off, you transfer the funds that went to that first debt to pay off the next one. The best avalanche strategy works in the opposite direction. This allows you to focus on paying off the debt with the highest interest rate first. Then it is easier to tackle small debts.
Get outside help
If you can’t manage your finances and have too much debt to pay off, it may be a good idea to use debt relief options and seek outside help. Turn to nonprofit credit counseling agencies if you can’t afford a paid specialist but need debt management plans. It’s better than continuing to struggle with debt repayment for many years.
Paying off debt is important if you want to focus on other financial goals, like saving for a down payment on a house or your retirement. Follow these 7 strategies and do your best to pay off existing debt. Set a budget and stick to it to avoid overspending and improve your money management skills for the future.