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Getting Rid of Your Debt Quickly… And What to Do When You’re Free
Research estimates that every American owes more than $7,000 on their credit cards alone, and the average debt loan per person is more than $15,000. Additionally, all college graduates are already saddled with more than $35,000 in loans when they leave college. Are you surprised by the statistics?
Most owe thousands of dollars worth of debt. And every month, you pay interest on the money you borrow, interest that adds up over time. So why not pay off all the debt as soon as you can? Once you are debt free, you should not have to pay any monthly payments or any amount of interest.
Does it sound harsh? How will you pay your loans? As difficult as it is, if you are determined, you can have good control over your financial situation. We’ll share some amazing tips that will help you pay off your debt early, and then we’ll talk about what to do once you’re debt-free.
1. Pay more than the minimum amounts
This is a tip 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%, that means the minimum amount to pay the bank is only $625, which you will pay back in about 13.5 years. Isn’t it too long? Also, let’s not forget, 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 you can afford. This will help you save thousands of dollars in interest and allow you to pay off your loan much faster. But before using this tip, contact your bank and check that there are no prepayment penalties.
2. Try the snowball method
The snowball method is a popular strategy for paying off your debts, which is again based on paying more than the minimum monthly amount. List 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 smaller debt. For your other larger debts, you will 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 debt. This way, you can keep paying off 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 faster. The basic goal is to use all the extra money towards debts, starting with the smallest, until you’ve paid them all off.
3. Try to increase your income
How many sources of income do you currently have? If you are only doing one job, how about taking up other part-time businesses or ventures to earn more money. Doing so will give you more control over your finances and make 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 freelance in a wide range of industries. And even if you’re not a technical master, that’s absolutely fine. You can still babysit someone, mow gardens, or work as a cashier at a local store. So earn extra money and use it to pay off your debts. And once again, do it using the snowball method we’ve already discussed.
4. Create a simple budget…and stick to it
One of the best and most effective ways to pay off your loans is to cut back on all your expenses and spend only the bare minimum. As difficult as this may be, it is one of the fastest ways to become debt free and is definitely worth a try to improve your financial situation.
You can create a simple 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 did not have luxuries like eating out or watching movies. Avoid all unnecessary expenses and use the safe amount to pay off your debts. By the way, when you are debt free, you can revise your budget and increase your spending, but only as much as your income allows. Don’t take on more debt to satisfy your wants 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 set aside the things you really need and use regularly. Now sell all the remaining stuff and then use the money to become debt free. The easiest way to sell items is probably a garage sale. But if you don’t have permission to make one in your neighborhood, you can sell online on various websites like 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 into them? These amounts are usually higher, often eating up a large portion of your spending. But sometimes lenders can modify and review your rates, if you have a good credit history and have made timely payments. So talk to your credit card provider and try to negotiate more favorable terms.
7. Negotiate your bills
Did your credit card provider 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 would usually be more than happy to give you a better deal. Start with your cable and satellite TV service provider, as they are usually the ones most willing to negotiate. Prepare for the meeting, find out about the rates offered by other service providers, and then present your case. What if it doesn’t work? You’ve done your research yet, 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 to negotiate your medical bills, insurance premiums and rent amounts.
8. Consider transferring balances
Another strategy you can try is if your credit card provider won’t agree to lower rates. Balance transfer options are quite common, and if you do a little research, you can even find an option that allows you to have 0% APR for around 12 to 15 months. There may be a small fee, usually around 3% of the amount transferred, but this is still a good option. In the long run, you’ll be able to save money that you can use to pay off your debts faster.
9. Consolidate your debts
Debt and credit consolidation or bill consolidation allows you to simplify all your bills by combining all 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 paid through a debt management program, after which you pay a single payment each month for the next 3 to 5 years. When you pay off all your debts with a single new loan, you enjoy several benefits such as lower monthly expenses, better cash flow, greater savings and less stress. Before signing up for any program or loan, it may be a good idea to discuss all possible debt consolidation options with a financial advisor.
10. Use your bonuses or boosts
Did your employer reward you with a bonus or raise this year? Or maybe you received a tax refund. Whatever kind of extra money you get, avoid spending it on anything unnecessary. Instead, use it for your loans, paying more than the minimum amounts.
11. Get rid of your expensive habits
Are any of your habits too expensive and taking up a significant portion of your monthly expenses? If you are in debt, you should try to get rid of all your expensive habits. Find out how you spend money on a daily basis and then evaluate whether these purchases are really worthy or not.
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 often, avoid that too.
12. Avoid using credit cards
When you aim to pay off your debts early, you should completely stop using credit cards so as not to increase the amount you owe. Does it seem difficult? Leave your cards at home instead of keeping them in your wallet. If you need to use them for an emergency, make sure you pay the full amount next time so no interest is added. Another option could be to use a debit card, which funds the transaction with the amount in your bank account. You are only using your own money to not increase your debt.
Now that you are debt free
Follow our advice and you can pay off all your debt. And when you’ve achieved that goal, what do you do next? Here is what we propose.
Because you really deserve it after all these efforts to successfully minimize your spending to become debt free. So, allow yourself to relax, but don’t do anything too generous.
Review your budget
Up until now, you’ve been paying all your extra money to eliminate your debts, but now that the goal has been reached, you can use the money for something else. Think you’re burnt out at work? So take a vacation. Or you can use the money for a home improvement project.
But whatever you do, make a proper financial plan. And this plan should not be based on borrowing more money. Because if that’s the case, there was no point in being debt free.
Since you are now debt free, you can think about increasing your emergency funds. If your savings accounts are already impressive enough, you might be able to 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 saved for retirement so far? Find ways to improve your retirement plans. You can increase your monthly contribution or sign up for a different plan.
Keep in mind that if you increase your contributions by just 5% or 10%, they will all add up in the long run and become important when you retire.
Consider alternative investments
Because extra income is always desirable, right? Invest your savings in a new project or business. You could go into real estate, the stock market, or any other industry. It all depends on how much you are willing to invest. Whatever you choose, analyze the risks and propose effective mitigation strategies.
Establish a side business
You can even set up a side business if you have enough time and entrepreneurial skills. Get it right, and if you’re lucky, you might not have to work anymore.
Keep following our blog for more great financial tips.
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