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- To pay off debt quickly, you usually need to make more than the minimum payment on your highest interest rate debt.
- If you have credit card debt, consider opening a balance transfer card with an introductory 0% APR and paying off that balance during the promotional period.
- Then follow the debt avalanche method: put extra money on your debt at the highest interest rate and keep making the minimum payment on everything else.
- You can use an online calculator to figure out exactly how much you need to invest in the monthly payment to pay it off within the ideal time frame.
- Reduce your monthly bills and stay on top of your financial life with TrueBill Â»
Being in debt for too long, even if you take advantage of it to grow your wealth, can quickly become a burden.
Most of us don’t have the cash to pay for everything we want, whether it’s a house, a car, a vacation, or an education. A loan or a credit card can help fill the gaps, but it’s money you have to pay back, almost always with interest. Usually, the faster you pay it off, the less you’ll owe in total when it’s all said and done.
Here’s how you can make a plan to pay off your debt fast, so you can better use your money and start building wealth even sooner.
How to pay off debt quickly
1. Make a list of all your debts
If you have multiple sources of debt, such as credit card debt, student loans, and a personal loan, the first step is to list each one with the outstanding balance, interest rate, minimum payment, and payment due. Dated. Google Sheets – or just a pen and paper – can be a valuable tool for keeping track.
It can be a daunting exercise for people with high debt, but there’s no way to come up with a clear plan to deal with it without looking at the numbers carefully.
2. Avoid getting into more debt
Taking on more debt while trying to pay off a load of other debt can complicate matters. While you’re in repayment mode, avoid taking out another loan or using credit cards unless you can absolutely afford to pay off the balance at the end of the month.
3. Call your bank and ask for a lower interest rate
Most people don’t know that you can call your credit card issuer to request a reduced APR (annual percentage rate), which can make a difference of hundreds of dollars in interest payments. Eight in ten credit card holders who asked for a lower interest rate in the past year got one, according to a survey from CompareCards.com. The average reduction was six percentage points.
4. Consider consolidation
If you have debt on multiple credit cards, you may want to consider consolidating your balances into one so that you can make a single monthly payment.
A balance transfer card allows borrowers to transfer their balances to a new credit card, usually with an interest rate of 0% for a set period of time. If you are able to pay off your debt during the promotional period at a 0% interest rate, you have the potential to save a lot of money on interest. Note that you will be responsible for paying a transfer fee between 3% and 5% of the total balance.
You can also consolidate student loans into one, earning you a single monthly payment and potentially a lower interest rate.
5. Make at least the minimum payment on each card or loan
Whether you have two or five sources of debt, you should always make the minimum payment on each card or loan to avoid late fees and significant damage to your credit score.
6. Pay more than the minimum on the debt at the highest interest rate
Since your primary goal is to pay off your debt as quickly as possible, focus all additional funds on the debt with the highest interest rate (experts call this the Debt Avalanche Method).
By focusing on paying off the most expensive debts first, you can speed up the entire repayment process while saving money on interest. Even an extra $ 100 per month can make a huge difference, cutting months, if not years, into your repayment period.
One exception: if you’ve opened a balance transfer card with a 0% introductory rate, you need to be careful with the delay. This will likely be your debt at the lowest interest rate, which would put it at the bottom of the priority list if you go through the debt avalanche method. But, you can’t waste a lot of time with these cards because the promotional period is over, so squash that debt first and then move on.
7. Establish a payment date
Paying off your debts is a good goal, but paying off your debts with a specific Dated it’s even better.
There are various calculators online that can tell you exactly how many months you have until you are free and free, based on your current interest rate and monthly payments. If 18 months seems like too much, increase your monthly payment by $ 50 or $ 100 to start and see what a difference it makes.