Beyond gaining more peace of mind, paying off debts faster can help you get in front of your goals. Indeed, with those obligations out of the way, you can more confidently apply for new credit, save on loan interest rates, and generally move forward in life. After all, debt is more expensive these days, so it’s best to rid yourself.
Here’s how to wipe out debt as quickly as possible.
Tips to Help You Pay Off Debt
Stay on Top of Bills
You certainly don’t want to miss a payment, which can not only set back your quest to be debt free but can create other problems such as assessed penalties, an increased interest rate, etc. So consider using automated bill reminders so that you can schedule your payments. This way, you won’t risk forgetting one.
Try the Snowball Method
With this debt-reduction strategy, you erase debt starting with the smallest and progressively working toward the largest, gaining momentum along the way. As you go after each balance, make minimum payments on your other accounts. Then rinse and repeat until your debts are cleared. This method works especially well for those for whom the psychological boost from that first payoff motivates them to keep going.
There’s Also the Avalanche Method
Here, you’ll pay the balance that carries the highest interest rate first. Once that one’s erased, you’ll proceed to the account with the next-highest rate until you’re done. This method saves you money as well as allows you to pay all your debts faster.
Pay More than Once Monthly
Doing so will not only eliminate your debts quicker, but in the interim will reduce your credit utilization ratio — the sum of your balances, divided by the sum of the limits on your cards. It’s recommended that you keep your ratio under 30 percent so that your credit scores won’t take a hit.
Pay More Than the Minimum Each Month
In so doing, you’ll not only make more progress toward paying off your debt, but you’ll save on interest. Before you start, though, review your loan terms to see whether you’ll be subject to prepayment penalties.
Debt Payoff Options
- Refinancing. You can use refi to get a shorter term, which can help you pay off your debt faster and save on overall borrowing costs. Depending on your situation, you may be eligible for a lower rate or shorter loan term. Do note, though, that shortening your loan term could raise your monthly payments.
- Consolidation. Here, you roll all your debts into a single loan, which allows you to clear your balances faster and save money to boot since the idea is to get a better interest rate. The strategy also streamlines bill paying. If you have good credit, you can consolidate via a personal loan or zero-percent interest balance transfer card.
- Debt relief. If you’re behind on your balances with no hope of erasing them, a debt relief program may be for you. What are debt relief programs? They are run by companies whose negotiators will work with your creditors with the goal of getting them to accept less than what you owe to settle your debts. Creditors typically go along because they realize that if they turn you down and you file bankruptcy, they may get nothing.
Now that you know how to pay off debt as quickly as possible, consider which measure(s) will work best for you. Remember, with interest rates on the rise, carrying debt is more expensive than ever.
