22 Apr 10 Ways to Pay Off Debt Fast
Debt. What was once a four-letter word is now a household name.
According to The Pew Charitable Trusts, 8 out of 10 Americans are carrying around debt. So it’s not surprising that methods to pay off debt fast are in high demand.
According to data from the Federal Reserve, U.S. credit card debt hit $870 million as of December 2018. This is the highest amount ever.
On average, each household with a credit card carries over $8,000 in credit card debt, and each credit card holder has at least four credit cards.
The need to pay daily expenses, mortgage or rent, car payments, and so on have most of us treading water, uncertain of how we’re going to get out from the weight of debt.
There is good news though!
Debt payment does not have to be slow and excruciating. Here are 10 ways to pay off debt fast–without hating your life in the process.
#1 Pick a Payment Method
Before you get serious about tackling debt, you want a debt-payoff strategy that works best for you. There are two common methods to consider.
The snowball method means throwing every penny spared toward paying off the loan with the lowest balance first–regardless of the interest rate.
Paying off the smallest debt first gives you a quick win and helps pay off debt fast. What you gain is confidence, momentum, and motivation to then move on to the larger ones.
Here’s how to do it:
- Make the minimum payment on all your loans.
- Dedicate any extra money toward the debt with the smallest balance.
- Once you pay off the smallest debt, do a victory dance, and then move on to your next smallest balance, and so on.
Pros and Cons
The snowball method offers you a mental victory, but it might cost more. Making only minimum payments on your highest-interest debt means you’ll pay more in interest, as compared to the avalanche method.
The debt avalanche method, or debt stacking, is where you pay debts with the highest interest rates first.
Is it a more efficient option? Well, it all comes down to doing the math.
When you pay down the principal on your highest-interest debts first, you pay less interest overall.
And, since you’re paying less interest, you’ll pay off your debt faster.
Here’s how to do it:
- Order your debts from highest to lowest interest rate.
- Make the minimum payment on all your loans.
- Throw all extra money toward paying off the loan with the highest interest rate.
- Once you pay off one credit card or bill, you can roll that extra payment into your next debt obligation until you’re debt-free.
Pros and Cons
This method saves you the most money in interest payments, but it might take longer to get a high-balance debt crossed off your list–which can be frustrating.
Choosing Which Debt-Payoff Method to Use
Eliminating debt is a bit like losing weight…
The best method is the one you’ll stick to.
When it comes to paying off debt, select the method that will keep you motivated and on track to meet your debt-payoff goals.
Because if you don’t stick with your debt-payoff plan, you’ll put back on the weight, so to speak, and you’re back to square one.
If you aren’t sure which method is best for you, experiment. You can try debt stacking to start. If it’s not working in a few months, go ahead and switch to the debt snowball method.
The method you select is less important than having a plan to reach your end goal.
#2 Cut Back on Spending
Paying off debt fast means that every cent counts.
It seems like an easy enough solution, but cutting back on spending does require some planning (and self-control).
The first thing you need to do is print off your bank statements from the last few months. Highlight all the discretionary expenses–from that trip to Target to the latte you grab down the street every day.
Discretionary expenses are things you can live without–or wants rather than needs.
Once you have the list, add up all your discretionary expenses per month. This amount is what you could be applying to debt each month–that is, if you cut back on your spending.
Tick off the nonessential items you spend money on and make an effort to ditch them.
If you’re hesitant to cut back on something, ask yourself: What would you give up to be debt-free?
- Can you cut out ordering in food each week?
- Is it possible to trade in your expensive smartphone for one that costs less?
- What automatic subscriptions do you rarely use or have forgotten about that you could cancel?
If you do this exercise, you will see that the amount of money saved in these small actions can make a major difference in your ability to pay off debt fast.
#3 Stop Taking On More Debt
Continuing to use your credit card while you’re in debt will cancel out any progress you’ve made toward paying off your debt.
If you’re not paying more toward your debt than you’re spending, the amount you owe is actually growing instead of shrinking.
What to do?
Hide your credit cards if it’s a challenge to control your spending habits. Take them out of your wallet and put them in a safe or somewhere out of sight.
The goal here is to stop adding to the debt you’re working hard to eliminate.
We advise against canceling your credit card(s) because it could negatively affect your credit score. If you keep your card open and don’t add to the balance while you pay your debt down, you’re improving your credit utilization.
This is the ratio of your debt balance to your available credit–a big factor in calculating your credit score. A healthy credit score is key in getting loan approvals for larger purchases like a home.
Also, under the Fair Credit Reporting Act, car insurance companies may use your credit reports as part of their underwriting process.
#4 Call Your Credit Card Company for a Lower Rate
When it comes to credit card payments, it’s essential to get the lowest interest rate as possible.
This means that it will cost less money to pay off your total debt, helping you to pay off debt fast.
One way to do this is to call your credit card company and ask for a lower rate.
A CreditCards.com survey from March 2017 found that 69% of cardholders who asked for a rate cut received one.
Let your issuer know that you’ve been a loyal customer for years or have a history of on-time payments.
#5 Pay More Than the Minimum Payment
Whenever you can, pay more than the minimum payment on your credit cards.
Even if it’s making a second, smaller payment later in the month–any additional payment helps.
Let’s say, each month you pay $75 over your monthly minimum. That’s $75 toward the principal each month.
It might not seem like a lot, but add that up, and it’s $900 you will have paid on the principal in just 12 months.
When trying to pay off debt fast, remember: every little bit helps!
There are several benefits to paying above the set minimum:
- You could save hundreds, even thousands of dollars in interest just by increasing your monthly credit card payment.
- Paying your balance sooner affects your credit score, giving it a quick boost. This makes credit card companies feel comfortable giving you higher limits and lower rates.
- Buying a home or making other large credit purchases in the near future may require you to pay off existing debts to help you qualify for a loan or for a competitive interest rate.
- Increasing your monthly payment amount allows you to pay your balance down quickly so you can free up available credit.
#6 Consider Debt Consolidation
Having multiple loans can be overwhelming with the varying due dates and range of interest rates.
Debt consolidation rolls multiple debts into one payment–making your debt easier to manage. Ideally, when you consolidate your debt, you will have a lower interest rate, which makes repayment less expensive overall.
However, good credit is usually needed to qualify for debt consolidation.
Before applying, consider these important points:
- Method: What options will you have with each debt consolidation program?
- Cost: Is there a fee to review your finances and assess financial solutions?
- History: Is this a company you can trust with debt consolidation?
Another option for paying off your credit card debt is to transfer your debt to a low-interest or 0% credit card.
You can transfer a balance from your existing credit card and pay that balance off interest-free–as long as you pay it in full before the 0% intro APR period runs out.
Here are some words of caution:
- Balance transfer credit cards charge a fee every time you transfer a balance (generally 3 to 5% of the balance being transferred).
- Once the 0% APR period is up, your balance is subject to the regular APR — which is often higher than you might see with other cards. Often, these cards come with rates as high as 25%.
- If you violate some term (paying late or not making the minimum payment), you won’t get the entire introductory period. Your intro rate is revoked, and you revert to a higher rate. As a consumer taking advantage of balance transfer, you might end up not reaping the reward of eliminating debt. Instead, you could add to it.
The bottom line is if you do transfer a balance, make sure you have a plan to pay it off within the introductory period and do not break any of the issuer’s policies.
#7 Sell Your Stuff Online
Chances are, there is something in your possession you don’t use: clothing, furniture, or that Instapot you swore by.
If you need an injection of cash fast to pay down that debt, sell items that no longer serve you.
Now, this may not be a time to have garage sales, but there are a number of ways to sell items online. Join a local virtual garage sale group on Facebook or post your pieces on eBay or Nextdoor.
One big resale market is clothing.
Some experts suggest that we only wear 20% of what’s in our closets on a regular basis.
Free apps like Poshmark have changed our second-hand selling experience in a significant way.
No need to stand in line at resale stores only to have your pieces rejected or accepted for a disappointing amount.
With over 40 million users, Poshmark has a built-in buyer community, is easy to use, and has a streamlined shipping process.
And, it can be lucrative. According to money.com, one seller has quit her day job bringing in $3,000 a month selling clothing and accessories on Poshmark.
Whatever approach you take, do your homework to avoid regrets. Make sure you know the value of an item before you sell it for less than it is worth.
#8 Come Into a Large Chunk of Cash? Put It toward Debt
While it’s great to see your debt dwindle bit by bit, there is something very satisfying in seeing a drastic one-time drop.
If you come into a significant amount of money via a work bonus, raise, tax refund, or inheritance, put it toward what you owe.
This way of paying debt fast is effective and feels great! Simple as that.
#9 If You Have a Federal Student Loan Right Now, Pay on It If You Can
If you owe federal student loans, there’s some good news right now.
Under the CARES Act, federal student loan payments are automatically suspended and interest is set at 0% from March 13, 2020, through September 30, 2020.
Do not mistake this pause on payments as forgiveness. Your debt will be waiting for you when repayment begins at the end of September–unless the policy changes.
Regardless, this gives many borrowers a chance to catch up on payments.
According to a report by the Center of Microeconomic Data, 11.1% of student debt was over 3 months delinquent or in default at the end of 2019.
Whether or not you fall in this category or have been chipping away at your loan, not having to pay any new interest on your loans for six months gives you a breather.
Also, if you can continue making payments, you can get ahead paying on the principal amount.
Take advantage of this grace period and make as much of a payment as you can. This will pay off in the long run.
#10 Get a Side Hustle
Finding ways to bring in extra income can accelerate your debt payoff.
Some jobs can be completed in less than an hour, like user testing for websites and selling items online. Others, like blogging and freelancing will take longer, but may earn you more cash.
Consider how much time you have to devote, what you’re interested in, and any start-up costs before selecting your side hustle.
If it meets your goal of paying off debt fast, then it’s worth exploring.
Connect with us on Facebook for more side hustling tips & tricks.