If you are suffering from debt, you are not alone. In 2018, America’s total national household debt topped $13 trillion, affecting roughly 300 million people. Given the amount of debt Americans are carrying, it’s important to know how to pay off debt fast.
Mortgages are the leading cause of debt for most Americans, with credit cards, student and auto loans tacking on additional debt. Credit card interest rates are on the rise, too, with the average interest rate at 16.86% and growing.
Spending is easy, but knowing how to get out of debt fast is much harder. The more you spend, the more you risk getting lost in a sea of debt as interest continues to spiral.
8 ways to get out of debt fast
Getting into debt is a common issue, and while it takes time, you can break the cycle and free yourself from high interest loan payments. You just need to know some simple ways to get yourself out of debt to do so.
1. Stop taking on more debt
Emergencies happen, which is why it is more important than ever to keep an open line of credit for when you need fast access to cash. Still, that line of credit should be reserved for emergencies, not splurges.
Shop sales and use coupons when you can. If you can’t afford to pay in cash, then do not make the purchase if it’s not a necessity. If you are always spending, you will never be able to eliminate your debt.
2. Make a budget and stick to it
The first step is to create a budget that separates your necessities from your extras and then stop indulging in the extras. Essentials include your rent, utilities, and car payment, but not those dinners out or happy hour with your work buddies. By streamlining your spending to exclude those extra indulgences, you will save tons of money that you can use to pay down your debt.
3. Maximize your monthly payments
It’s good to make timely payments each month, but if you are only paying the minimum on your credit card debt you will get stuck paying more money in interest charges than necessary. As you add more debt to your account, your interest will increase and it can take you years to pay off what you owe. Try to push extra cash toward your payments each month rather than paying the minimum. The larger payments will reduce your debt and save you from paying unnecessary interest.
4. Use windfall to pay down balances
There are times when you might receive extra cash. Perhaps you got a big raise at work, received an inheritance or received a hefty refund on your taxes. Whatever the reason, it’s a smart idea to apply this large sum to your debt. It will reduce the amount you owe on the principal and help you save money on interest in the months and years to come.
5. Earn extra cash
A side hustle can help you earn extra cash to pay down your debt. Freelance gigs are fantastic ways to make money in addition to tried and true methods like babysitting, mowing lawns and cleaning services. You can also use this opportunity to clear your garage or attic and earn some extra cash from a quick yard sale.
6. Pay the highest interest first
You can use a strategy of paying off the accounts with the highest interest first to help eliminate your debt. It’s a simple strategy of making the highest payment on your largest loan while maintaining the minimum payment on all of your other accounts. This allows you to save countless dollars in interest on the accounts with high interest rates.
7. Consider debt consolidation
You have probably seen a fair share of debt consolidation advertisements and there is a good reason for that. A debt consolidator can help you by combining all of your debt into a single loan called a debt consolidation loan, which is used to pay off your current debts. Your payments will be streamlined into one monthly obligation, and you will usually pay a lot less in interest due to a lower interest rate. Not only does it simplify the repayment process, but debt consolidation companies can often negotiate on your behalf to lower your total debt.
8. Know when to get help
Making a budget is simple, but sticking to it is not so easy. There are many programs and apps that can help you develop an appropriate budget. When the amount of debt you’re carrying is high it can feel like your finances are hopeless, but there are plenty of resources that can help.
Bankruptcy is also an option through Chapter 7 or Chapter 13 filing. It allows you the opportunity to restructure, reduce or eliminate your debt altogether. However, most people use bankruptcy as a last resort because it will impact your credit score and can appear on your report for years to come.
The bottom line
It all starts with a budget. By outlining what you owe and the payments you need to make each month you will have a greater understanding of your financial situation and can make better choices when managing your money. There is also nothing wrong with receiving help when you need it. Finances are a tricky matter, which is how Americans ended up with $444 billion in credit card debt to begin with.