Our goal at Credible Operations, Inc., NMLS Number 1681276, hereafter referred to as “Credible”, is to give you the tools and confidence you need to improve your finances. Although we promote the products of our partner lenders who pay us for our services, all opinions are our own.
Overcoming debt is possible, especially when you understand how you can pay off each type of debt. From student loans to high-interest credit card debt, there are different strategies you can use to pay off what you owe faster.
Keep reading to learn more about your options for paying off your debt, including debt consolidation loans, balance transfer credit cards, and more flexible methods like cutting non-essential expenses.
With Credible, you can compare personal loan rates from different lenders in minutes.
make a budget
Your first step is to create a budget specific to your unique financial situation. You can download easy-to-use budget templates that show you how to structure your budget to meet your financial goals. You can also create your own budget using only your expenses, income, and goals. Here’s how:
- Write down your expenses, starting with recurring bills like rent, utilities, and insurance.
- List your other expenses, such as groceries, cable, and minimal credit card or loan bills.
- Write down how much money you earn each month, including any additional income, such as child support.
- Subtract your expenses from the money you earn to determine how much you have left.
- Devote any excess to paying off your debt, and assuming you have the same amount left over each month, you can predict how long it will take to pay off your debt.
There are many online tools that can help you create and stick to your budget. Consider free resources from MyMoney.gov such as calculators, budgeting worksheets, and checklists. You can also download personal finance and budgeting apps, such as BillGuard and Mint.
The key to making your budget work for you is to follow it closely. You can always adjust your budget as your income increases or you pay off debt.
Look for opportunities to lower your monthly bills
Once you’ve established your budget, review your recurring payments to find savings opportunities. Your mortgage or rent, phone bill, and insurance are essential expenses, but you may be able to cut back each month in other areas.
If you have both auto and home insurance, for example, consider bundling with one company to save money each month. Shop around to find a more affordable mobile phone plan, and consider switching ISPs to take advantage of promotions for new customers. Cutting a few dollars from several recurring payments can save you a lot over the year and free up more money to spend on your debt.
If you’re looking for a personal loan to help pay off your high-interest debt, you can use Credible to compare personal loan rates from multiple lenders.
Reduce non-essential expenses
If you can find ways to reduce non-essential expenses, it can go a long way toward reducing your debt and increasing your savings. Non-essential expenses might be buying lunch or a cup of coffee every day at work, or paying for several streaming services you rarely use.
Take inventory of your expenses; your bank may provide you with a chart in your monthly statement that divides your expenses into categories, such as entertainment and bills. Go through the list and identify where you could replace non-essential expenses with an opportunity to save.
STUDY: GEN Z CONSUMERS ARE RESOLVED TO SAVE MONEY AND SPEND LESS IN 2022
Consider the Debt Avalanche Method
Do you want to pay off your debts as quickly and efficiently as possible? You can have success with the debt avalanche method.
With this method, you pay off your debt with the highest interest rate first, while making the minimum monthly payments on all your other debts to stay in good standing. After paying off the debt with the highest interest rate, you move on to the debt with the next interest rate, and so on, until you have paid off all of your debts.
The debt avalanche method helps you limit the amount of additional debt you will accumulate due to high interest rates.
Try the Debt Snowball Method
The debt snowball method is similar to the debt avalanche method, but with this debt repayment strategy, you put your extra money each month to pay off the debt with the smallest outstanding balance. first. You then eliminate the next smaller debt, until you have paid off all of your debt. (You’ll still make minimum payments on all of your debt as you tackle each balance.)
The debt snowball method can motivate you to keep going as you gain momentum and your debts start to disappear.
Transfer your balance to a credit card at 0% APR
If you have high-interest credit card debt, consider transferring your balance to a credit card with a 0% annual introductory rate, or APR. Some balance transfer cards offer 0% APRs for up to 18 months.
The main advantage of a balance transfer card is that you can pay off your credit card debt more cheaply, since you won’t pay interest during this period.
But keep in mind that this strategy can be risky. If you don’t pay off your debt by the end of the introductory period, you’ll be charged interest on your remaining balance at the normal rate, and credit card APRs can be high. The average APR for credit cards in November 2021 was 16.44%, according to the Federal Reserve. This can end up increasing your overall debt and prolonging repayment.
You will generally need a good credit score to qualify for a 0% APR balance transfer card.
WHAT APR MEAN ON YOUR CREDIT CARDS AND LOANS
Apply for a personal loan
Another option to help you pay off your debt faster is to take out an unsecured personal loan that you will use to consolidate your higher interest rate debt.
Debt consolidation loans give you a lump sum of money that you use to pay off your existing balances. You will then start repaying the debt consolidation loan and you will only have one monthly payment. If you have a good credit rating, personal loan rates can be lower than credit card rates, saving you money. With a lower interest rate, you can pay off your principal balance faster and eliminate multiple debts at once.
Be aware, however, that you should try to avoid creating new high-interest debt while you are paying off your personal loan. You could find yourself in financial trouble if you have personal loan repayments and credit card payments every month.
Credible makes it easy to compare personal loan rates, all in one place.
Take a side scramble
Earning extra income can also help you pay off your debt. Technology has revolutionized the possibilities of starting a side hustle, allowing you to make money selling goods on sites like Etsy and selling services on Fiverr. You can also drive for carpool app in your spare time or deliver food.
You might even consider the traditional route of officially taking a second job, which can provide higher levels of income at a faster pace.
Whichever you choose, it is essential that you only use this income to pay off your debt. Once you’ve paid off your debt, consider putting your side income into a savings account to create an emergency fund.