Having a lot of debt makes life more difficult.
Monthly debt payments can eat up too much of your income, constantly leaving you out of cash.
Not only that, but having too much debt can make it difficult to build an emergency fund or qualify for a mortgage and other loans, which can mean sacrificing your long-term future.
There are some strategies you can use to pay off your debts faster, save money, or both.
So if you're hoping to get rid of debt and start saving money for the things you really want, here are six of the best ways to do it.
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1. Pay more than the minimum
If you have a ton of credit cards and you're only making the minimum payment on them, it will take decades to get out of debt.
This is especially true if you have a high APR on your credit card, and if you're still using their cards for purchases while you're in debt, it's almost guaranteed that you'll never catch up.
Consider this example: Someone who owes the average balance of USD $ 6,569 may have a minimum monthly payment of around USD $ 131. If the APR on this card is 19%, it will take 101 months to pay USD $ 131 a month before that the debt is paid.
That's over
eight years
to pay off the balance, and they'll pay $ 6,604 in interest along the way!
But by increasing their monthly payment to $ 170 per month, they could be debt free in just 61 months and cut their interest costs by almost half, to $ 3,672.
And if they could pay $ 200 per month, they could pay off their balance in full in 47 months and pay only $ 2,777 in interest.
2. Create a debt snowball
If you're juggling multiple debts and feeling overwhelmed, one way to manage them all is to consider creating a "debt snowball." With this method of debt payment, you will make the minimum payments on all of your largest debts, then funnel any extra money you have toward your smallest debt each month. As the smallest debt is paid off over time, the money that went into that debt "snowballs" to pay off the next smallest debt, and so on.
The debt snowball method can be advantageous as it helps people get rid of some of their smaller bills right away.
This can help build momentum during the debt payment process, and reduces the number of monthly bills you need to pay as you go.
3. Use an avalanche of debt
The "debt avalanche" method is basically the opposite of the debt snowball.
With this strategy, people make the minimum payments on all of their debt, then funnel any extra money they have toward their debt with the highest APR.
Debts with the highest APRs are eliminated over time, at which point individuals "avail" those payments toward debt with the next highest APR.
This method of debt repayment helps you save on interest, as you are paying off your higher-interest loans and credit cards first.
However, it often leaves users paying more bills for longer as it focuses on APRs rather than balances owed.
Both the debt avalanche method and the debt snowball method are good ways to get out of debt - it's up to you which one you prefer.
4. Apply for a debt consolidation loan
Another way to pay off debt quickly involves applying for a debt consolidation loan.
With this debt management strategy, you use a personal loan to pay off all your other existing debts.
This allows you to get rid of high-interest credit cards and other high-interest debt while swapping them for a single loan with a fixed interest rate and a fixed monthly payment.
Considering that personal loans often come with no annual fees, no origination fees, and fixed APRs as low as 6%, this strategy can be used to get out of debt faster and save money along the way.
Going from multiple bills each month to just one can also make budgeting significantly easier.
5. Sign up for a balance transfer credit card
A second method of debt consolidation is to sign up for a balance transfer credit card. With this type of credit card, consumers can earn a 0% APR on balance transfers for a period of up to 21 months. There is a balance transfer fee (usually 3% to 5%), but having all that time with zero interest makes it easy to pay off debt considerably faster. After all, every penny paid on debt at 0% APR goes directly to reducing your balance.
While balance transfer credit cards can help consumers save a lot on interest, it's important to consider balance transfer fees.
Also, remember that 0% APR offers don't last forever, and if you haven't paid off your debt before your introductory offer expires, you'll pay a high variable APR after your promotional period ends.
6. Increase your income
Earning more money is another strategy that can help pay off debt faster, although this step is often easier said than done.
You may not be able to get more hours at work, and a raise may not be in the plans this year.
Maybe you can have a "side job" in your spare time.
Regardless of what you do to increase your income, the key to maximizing your efforts is putting all of your extra money into your debt each month.
If you work overtime and spend that money instead, you are not going to get out of debt any faster.
But if you put the extra money into paying down debt, you'll improve your debt-to-income ratio and make it easier to save money and qualify for the best financial products in the future.
Is Debt Consolidation A Good Idea?
Earning more money can definitely help you pay off debt faster, and the debt snowball and avalanche methods can help you reduce your bills quickly or optimize your interest savings.
However, debt consolidation is a completely different situation, as you are exchanging your current debts for a new balance transfer loan or credit card with different terms.
In general, debt consolidation can be a good idea, but it all depends on how it is done.
For example, consumers who consolidate debt with a plan in mind can do well paying their bills at a lower APR (or zero interest), and can save time with a shorter loan term.
However, debt consolidation carries risks, mainly because it opens the door to accumulating more debt over time. We say this because debt consolidation allows you to transfer all your debts to a new credit card or personal loan, which means that all the cards that previously had a balance are suddenly empty and available again.
So if you decide to consolidate your debts, make sure you don't use it as an excuse to start overspending on your newly available credit cards.
While canceling a credit card can hurt your credit score by lowering your available credit, it's probably not a bad idea to put those unused cards in a sock drawer so you don't be tempted to rack up additional debt while you're still in it. process of paying off your existing debt.
How to pay off debt quickly
Any of the six methods outlined here will help you pay off your debt faster and put you on a solid financial footing.
But whatever debt repayment strategy you choose, there is a simple rule of thumb to remember:
If you want to get out of debt, you have to stop spending
In general, this means being disciplined with your credit cards in the future.
Only spend what you can pay in full each month on a credit card and nothing else.
If you feel like having a credit card is going to be too tempting, ending credit card use altogether, at least until you are debt free, and focusing on using cash or short-term debit cards could be the best debt reduction strategy of all.
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