Research estimates that every American owes more than $ 7,000 on their credit cards alone, and the average overall debt loan per person is more than $ 15,000. Additionally, all college graduates are already burdened with loans exceeding $ 35,000 when they leave college. Are you surprised by the statistics?
Most of you owe amounts of debt worth thousands of dollars. And every month, you pay interest on the borrowed money, interest that accumulates over time. So why not pay off all debts as quickly as possible? Once debt free, you will not have to pay monthly payments or interest.
Sound harsh? How are you going to pay off your loans? As difficult as it may be, if you are determined, you can take good control of your financial situation. We’ll share with you some amazing tips that will get you paying off your debt soon, and then we’ll talk about what to do once you’re debt-free.
1. Pay more than the minimum amounts
This is advice that applies to your credit cards, student loans, and other personal loans. Considering credit cards, the average balance for any individual is around $ 15,000 as we mentioned at the beginning. If the APR is 15%, it means that the minimum amount payable to the bank is only $ 625, which it will pay off in about 13.5 years. Isn’t it too long? Also, let’s not forget that it will take longer to pay off the borrowed amount if you continue to use your credit cards for other purchases during this time.
Instead of paying the minimum amount, your monthly payments should be as large as possible. This will help you save thousands of dollars in interest and will allow you to pay off your loan much faster. But before using this tip, contact your bank and make sure there are no prepayment penalties.
2. Try the snowball method
The snowball method is a popular strategy for paying off your debts, which again relies on paying more than the minimum monthly amount. Make a list of all your debts starting with the smallest, which is the one you will tackle first. Use your surplus funds and pay more than the minimum amount for the smallest debt. For your other larger debts, you would still pay the minimum amount.
Now, when you’ve paid off the smallest debt, you can move on to the next debt on your list and start paying more than the minimum amount for that one. In this way, you can continue to pay all the debts one by one. As your small balances disappear, you free up more dollars that would allow you to pay off your larger debts more quickly. The basic goal at all times is to use all of your extra money for debts, starting with the smallest, until you have paid them all.
3. Try to increase your sources of income
How many sources of income do you currently have? If you’re just doing one job, how about indulging in other businesses or companies part-time to earn more money? Doing so will give you more control over your finances, making it easier for you to be debt free.
Reflect on your strengths and see how you can use them. Create an account on websites, like Upwork, where you can work as a freelancer in a wide range of industries. And even if you are not a technical master, it is absolutely fine. You can still babysit, mow the lawn, or do a cashier job at a local grocery store. So earn some extra money and use it to pay off your debts. And once again, do this through the snowball method we’ve already discussed.
4. Create a basic budget … and stick to it
One of the best and most effective ways to pay off your loans is to cut down on all your expenses and spend only the bare minimum. As difficult as it may be, it is one of the fastest ways to get out of debt and it is definitely worth a try to improve your financial situation.
You can create a basic budget that will allow you to reduce your expenses as much as possible and live only on what is absolutely necessary. Since you all have different needs, your basic budgets will also be different. But a common thing would be the fact that the budget would be devoid of luxuries like eating out or watching movies. Avoid all unnecessary expenses and use the amount you are sure to pay off your debts. By the way, when you are debt free, you can review your budget and increase your expenses, but only as far as your income allows. Don’t go into debt to satisfy your cravings and desires.
5. Sell the items you don’t need
An easy way to get quick cash that you can use to pay off loans. Go through all your belongings and put aside the things you really need and use regularly. Now sell all the remaining things and then use the money to be debt free. The easiest way to sell items is probably a yard sale. But if you are not allowed to hold one in your neighborhood, you can sell online on various websites such as eBay.
6. See if you can get a lower interest rate on your credit card.
What are your credit card fees and interest rates? And how much money goes to them? These amounts are typically on the higher side and often consume a large portion of your expenses. But sometimes lenders can adjust and review your rates, if you have good credit and have made payments on time. So talk to your credit card provider and try to negotiate more favorable terms.
7. Negotiate your invoices
Your credit card provider did not agree to lower interest rates? Don’t worry, try negotiating your other monthly bills now. Yes, you can talk to your utility providers and they will generally be more than willing to offer you a better deal. Start with your cable and satellite TV service provider, as they are generally the most eager to negotiate. Prepare for the meeting, learn about the rates offered by other service providers, and then present your case. What if it doesn’t work? You’ve still done your research, right? Switch to a provider that offers a lower rate for a similar package. You can also negotiate your internet bills in a similar way. And by the way, bundle your Internet and TV bills if you haven’t already, because you can get better rates if you choose the same provider for both. Also try negotiating your medical bills, insurance premiums, and rent amounts.
8. Consider transferring balances
Another strategy you can try if your credit card provider doesn’t agree to lower rates. Balance transfer options are pretty common, and if you do a little research, you can even find an option that lets you take advantage of 0% APR for about 12-15 months. There may be a small fee involved, usually around 3% of the transferred amount, but this is still a good option. In the long run, you can save money that you can use to pay off your debts faster.
9. Combine your debts
Debt and Credit Combination or Bill Combination allows you to simplify all of your bills by combining all of your debts into one monthly payment. Not only is the loan easier to manage, but you can also get a lower interest rate. The option can be used for multiple debts, multiple creditors, and multiple payments. All of these bills are settled through a debt management program, after which you pay a single payment each month for the next 3-5 years. When you pay off all your debt with a single new loan, you enjoy several benefits, such as lower monthly expenses, better cash flows, greater savings, and less stress. Before enrolling in any program or loan, it may be a good idea to discuss all possible debt blending options with a financial advisor.
10. Use your bonuses or raises
Did your employer reward you with a bonus or raise this year? Or maybe you got a tax refund. Regardless of what kind of extra money you get, avoid spending it on unnecessary things. Instead, use it for your loans, paying more than the minimum amounts.
11. Get rid of your expensive clothes
Are any of your clothes too expensive and represent a significant part of your monthly expenses? If you are in debt, you should try to get rid of all your expensive habits. Find out how you are spending money on a daily basis and then assess whether or not these purchases are really worth it.
Drinking and smoking are habits that you should definitely stop, not only to reduce your expenses, but also to improve your health. If you eat out frequently, avoid it too.
12. Avoid using credit cards
When your goal is to pay off your debts sooner, you should stop using credit cards altogether to avoid increasing the amount you owe. Does it seem difficult? Leave your cards at home instead of keeping them in your wallet. If you have to use them for an emergency, be sure to pay the full amount next time so no interest is added. Another option could be to use a debit card, which finances the transaction with the amount in your bank account. You are only using your own money so as not to increase your debt.
Now that you are debt free
Follow our advice and you can pay off all your debts. And when you have achieved this goal, what will you do next? This is what we suggest.
Treat yourself
Because you really deserve it after all those efforts to successfully minimize your expenses to be debt free. So allow yourself to relax, but don’t do anything too generous.
Check your budget
Until now, you were paying all your extra money to eliminate your debts, but now that the goal has been achieved, you can use the money for something else. Do you think you’ve been burning yourself at work? So, take a vacation. Or you could use the money for a home improvement project.
But whatever you do, create a proper financial plan. And this plan should not be based on borrowing more money. Because if that’s the case, it doesn’t make sense to be debt free.
Increase savings
Since you are now debt free, you can consider increasing your emergency funds. If your savings accounts are already impressive enough, then maybe you could start saving for a new car or a down payment if you live in a rental unit.
Increase your retirement accounts
How much money have you set aside for withdrawals so far? Think of ways to improve your retirement plans. You can increase your monthly contribution or enroll in a different plan.
Keep in mind that if you increase your contributions by a mere 5% or 10%, they will all add up in the long run and will be significant when you retire.
Consider alternative investments
Because some extra income is always desirable, right? Invest your savings in a new project or company. You could enter the real estate market, the stock market, or any other industry. It all depends on the amount you are willing to contribute. Take your pick, analyze risks, and develop effective mitigation strategies.
Establish a parallel business
You can even set up a side business if you have enough time and business skills. Get it right, and if you’re lucky enough, you may no longer need to work.
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