Top Strategies to Pay Off Your Debt Fast
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Becoming debt-free is possible, though it may take some extra effort to pay off all your debt faster. There is no one-size-fits all solution either, so you can choose from strategies that work best for your personality and financial situation. Whatever you choose, taking an active role in tackling your debt is a step in a positive direction.
Reasons to Pay Off Your Debt Quickly
Some reasons to pay off your debt quickly include:
- Freeing up money that would have gone towards debt payments to other financial goals.
- Save on interest charges.
- Boost your credit score.
- Feel good knowing you are debt free.
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Debt settlement companies help you negotiate with lenders to lower interest rates or settle for an amount less than what you owe.
Strategies to Pay Off Debt Fast
The good news is that you can choose one, several, or all of the four strategies to become debt free sooner. Strategies include working with a debt management company, consolidating your debt, or finding ways to bring in extra income.
Debt Consolidation
Debt consolidation is where you take out a personal loan and use the proceeds to pay off all your existing debt. The idea is to simplify your debt payments—instead of making multiple payments and feeling overwhelmed, you only have one. If you’re able to qualify for a lower rate than your existing debt, then you can save on interest charges.
To become debt free faster, you can take the amount you saved with your new loan and put it towards extra payments. Check to see whether the lender charges any prepayment penalties, as this fee could wipe out any interest savings you would have had.
Use a Debt Management Company
A debt management company is one where you can work with a credit counselor to find effective strategies to pay down your debt. Many of these companies are nonprofit organizations, charging little to no fees. Some of what a debt management company can help you with includes figuring out how much you can put towards debt repayment, refinancing to new loans that may be a better fit, and helping you negotiate with lenders to work out repayments so you can better afford to pay off loans.
Strategies a credit counselor may suggest include the debt snowball method, where you make extra payments towards the smallest debt while making minimum payments on all other ones. Once the smallest debts are paid off, you can then use the funds that would have gone towards that debt as extra payments to the next smallest loan, until you pay them all off. Another similar method, the debt avalanche method, prioritizes debts with the highest interest rates first.
Debt management is different from what debt settlement or debt relief companies provide in that they only work with you on a plan, mostly for you to execute. Debt settlement companies help you negotiate with lenders to lower interest rates or settle for an amount less than what you owe. Some may have you pay the lender directly. Others may have you pay them in one monthly payment, and the debt settlement company pays your lenders.
When choosing to work with a debt settlement company, watch out for red flags to determine legitimate ones from ones that are not. Red flags include companies asking you to stop paying your lenders until they’re able to settle your loans or paying them an upfront fee before they work with you on your financial situation. By not paying your lenders while you’re waiting to settle your debt, you may be on the hook for late payments or risk negatively affecting your credit because of the lack of on-time payments. While there are pitfalls, debt settlement can be a viable option if you do your due diligence.
Take your time to consider all your options before making a decision.
Cut Your Expenses
Becoming debt-free may be possible using the resources you already have. While it may not be fun to cut expenses like only going out to dinner once a week from three times a week, it may be worth it temporarily. Take some time to comb through your spending to see if there are any areas you can cut back for a little while. Don’t strip down your budget to the bare bones though, or else you may end up rebelling if there isn’t room to spend for fun.
Work an Extra Job
Sometimes, cutting expenses can only get you so far. To pay off your debt fast, it may be a smarter idea to earn more and use the extra funds to pay off loans. Consider speaking with your manager to see if you can work more hours or get overtime if possible. If not, you can work extra jobs such as driving for rideshare companies, delivering food, or doing seasonal work.
Help With Your Debt
Conduct a Balance Transfer to Another Credit Card
You can refinance credit card debt using a balance transfer to another credit card, ideally with a lower interest rate. That way, you can use what you would have saved in interest as extra payments to pay down your debt. Depending on what you may qualify for, credit card issuers offer cards with 0% introductory APRs (annual percentage rate). You can take advantage of this low rate by making interest-free payments, hopefully paying off your entire balance before the regular APR kicks in.
Some card issuers have a balance transfer fee, so check to see how much you may pay, and whether the interest savings more than offset the charges.
What Happens if You Don’t Pay What You Owe
Life happens, and it can feel hard to pay off your debt fast. Not paying on time or missing payments could result in several negative consequences though.
Pay More in Interest and Fees
When you’re late or miss a payment, the lender could charge you late fees each time it happens. Depending on the terms of your loan, you may be charged more interest. Interest that accrues causes your overall balance to go up.
Credit Score Hit
Payment history is one of the most important factors when calculating your credit score. The more consistently you make on-time payments, the more favorable your credit will be. On the other hand, your score could lower if you’re late on payments.
Less Likely to Reach Other Financial Goals
The more debt you owe, the more you could hinder the possibility of reaching other financial goals. For example, if you’re looking to save for a down payment on your first home, having a lot of debt payments means you may not have a lot of financial wiggle room. Even if you can save, it may take longer than you’d like.
