How to Pay Off Debt Quickly: NPR

0


Make a plan to get out of debt.

If you are in debt, you are not alone. Our brains seem almost designed to take us into debt. About 50% of credit card holders don’t pay them off every month, which means millions of people are paying high interest rates on their debt. And if you’ve taken out loans to get through COVID-19, you’re far from the only one.

On the other hand, if more money than usual has accumulated in your checking account because you did not go to restaurants or bars or movies in the middle of the pandemic, then it is Perhaps now is a great time to start tackling those credit cards. balances or other debts.

“The most important thing you need to do when you have a lot of debt is forgive yourself,” says Washington post columnist and author Michelle Singletary, “because you need to take this step first in order to lay the foundation for success.”

Here are seven tips for getting out of debt.

1. Stop random spending and make a plan.

It’s too tempting to spend money right now if you don’t have a plan ahead. Setting financial goals – whether you want to save for a purchase or just get by from week to week – can help you feel like you’ve got something to achieve.

“You absolutely need a plan,” says Singletary. “If you don’t have a plan, you are probably going to fail.”

2. Pick a shot – are you a “snowball” or an “avalanche” type?

With the avalanche method, list your debts with the highest interest rates at the top and pay the first while respecting the minimum monthly payments of the others at the same time.

“From an economic standpoint, you’ll do much better by paying off the debt with the highest interest rate first, because you’ll have essentially less total debt to pay off over time,” explains Abby Sussman, a professor at the University of Chicago who studies the psychology of financial decision-making.

The snowball method relies less on math and more on motivation. List the debts from smallest to largest. Pay off any debt and boom! You get a victory.

“What the studies show is that when people make immediate progress, when they get rid of certain debt, it energizes them,” Singletary explains. “It encourages them.” These little victories help you build momentum, like a snowball rolling down the side of a mountain.

3. Budget and cut expenses.

“You can spend less or earn more,” says Sussman.

During the COVID-19 pandemic, earning more isn’t really an option for most of us – so spending less is probably the way to go.

  • Leave credit cards at home – research supports the idea that people will spend less when using cash.
  • Use the envelope method – put the budgeted amount of money in designated envelopes to limit purchases.
  • Don’t just focus on the little things, focus on the big budget items, like your rent or mortgage. Reconsider your living situation: can you live with parents or roommates?

4. Try to “spend quickly” – you will start to crush your debt and learn a lot too.

Drastic spending cuts can be exhausting but effective, and it comes with an added benefit: When the fast is over and you’ve paid off a substantial debt, you’ll know what you can really do without.

“So you start to add only the things that matter to you,” Singletary says.

5. Don’t waste your tax refund – use it to pay off your debt.

Resist the urge to spend unexpected deals, no matter how small. Research has shown that people tend to be more likely to take out loans to buy cars right after receiving a bonus – and these people are more likely to default, Sussman says.

6. Beware of debt consolidation.

If you wipe out your credit cards while consolidating your debt, the human tendency is to have credit cards waiting to be filled again.

Plus, while consolidation may lower your overall interest, personal finance experts believe these extremely high interest rates on credit cards are a motivation to pay off debt as quickly as possible. Everything else, says Singletary, just stirs up the deckchairs on the Titanic.

7. Get one-on-one help from someone you trust.

Find a nonprofit counselor in your area – Singletary runs a debt counseling program at her local church, for example. You can find nonprofit advisors via The National Foundation for Credit Counseling website.

Sylvie Douglis has released the audio for this episode, which was originally released in 2019. You can listen to the audio of the original episode here.

We would love to hear from you. Leave us a voicemail message at 202-216-9823, or email us at [email protected].

For more Life Kit, Subscribe to our newsletter.


Share.

About Author

Leave A Reply