Debt can stand in the way of reaching your financial goals. You might have to put off buying your first home and investing for your retirement if you dont pay off debt. Plus, you might be trapped in a 9-5 due to your mountain of minimum monthly payments required just to stay afloat.
The benefits of paying down your debt quickly start with the emotional and financial freedom that comes when you no longer have any payments due. Beyond that amazing feeling, you can also work towards long term financial goals that can make your lifestyle dreams a reality. When you are ready to pay off debt quickly, then you’ll need to change your strategy. Instead of making the minimum payments, you’ll need to prioritize extra debt payments in your budget.
Ready to find out more about paying down debt fast? Read on.
How to pay off debt quickly
The two basic ways to pay off your debt faster include increasing your income or reducing your expenses. You can choose one option or both to supercharge your debt repayment strategy.
Let’s take a closer look at the options.
With more income, you’ll have more money to put towards your debts. Of course, increasing your income might sound like a challenge. But it is definitely not impossible!
You could start by picking up overtime at your current job or negotiating for a higher salary. Beyond that, you can work to build more streams of income through side hustling. Luckily, there is no shortage of lucrative side hustle options. A few to consider include freelance writing, offering childcare, and building your own blog.
Reducing your income can have an immediate impact on your ability to pay down debt.
If you want to get serious about reducing your expenses, then start by tracking your spending patterns. The more you know about your spending habits, the better prepared you will be to make changes. Once you start tracking your expenses, look at your spending with a critical eye. If any expense stands out as an excess, then cut it out.
You can get the most out of your budget by focusing on cutting back on your five biggest expenses – food, housing, transportation, taxes, and healthcare. You might need to get creative to slash these expenses, but that creativity can pay off in a big way. For example, if you take advantage of house hacking your tackle your housing expenses, then you might be able to live for free. Imagine how getting rid of that single expense could transform your life!
Debt repayment methods
Once you have some funds to put towards your expenses, it’s time to choose your repayment strategy. We will tackle two helpful strategies below.
With the avalanche method, you’ll focus on the highest interest debt. A higher interest rate means that you’ll pay more for that loan, so it makes sense to prioritize eliminating that debt first. When you have extra money, put it towards high interest debt. Once you pay off the highest interest date, then work on the debt with the second-highest interest rate.
The snowball method takes a different approach. Instead of focusing on the debt with the highest interest rate, you start with the smallest debt that you have. The goal is to pay off that small debt with any extra cash. Once that debt is eliminated, you can move on to focus on the next largest debt.
As you eliminate debts, the amount of money you have to put towards debt repayment should increase. You’ll be able to put the funds previously claimed by other debt payments towards your goal of becoming debt-free.
Which option is better for you?
Depending on the interest rates attached to your loans, the snowball method might not be the most efficient way to eliminate debt. But you’ll encounter small wins along the way with each debt you eliminate. That motivational win can empower you to move forward and tackle another debt.
On the flip side, the avalanche method promises efficiency. However, it may take a while to see marked progress. If you have high loan balances, then you might not feel the motivation to move forward without the small wins along the way. With that, you should only use the avalanche method if you are very motivated by the numbers of your personal finances.
Should you pay off debt fast?
Now that you know how to pay off to de fast. Let’s consider whether or not you should pursue this path.
Is paying off all debt a good idea?
Consumer debt can be a burden. Credit card debt and personal loans can have high interest rates attached that could present a drag on your personal finances. Beyond consumer debt, you may also have a mortgage or debts associated with building your real estate portfolio.
In most cases, it is a good idea to eliminate consumer debt from your life. But eliminating all debt is not always the best path. If you have some debt associated with your real estate investments or your home, then you should consider the risk of carrying that debt. Although there is some risk associated with carrying debt, you should weigh that risk against your personal tolerances and goals.
For example, you may have the goal of building a real estate portfolio. You might need to take out some loans to make that dream a reality through smart leveraging. It might be worth it to keep some debt around for an income-producing asset. With that, any income-producing debt should be paid off last.
Before you make a decision on paying off all of your debt, consider what you would otherwise use the money for. If you are planning to spend the extra funds on a dramatic lifestyle boost, then it would be better spent paying off debt. But if you are planning to leverage the money into income-producing assets or invest in your education, then you may not need to move forward on some of your debt repayment.
In the end, only you can decide whether or not paying off all debt is a good choice for your life
How much credit card debt is normal?
The average American household owes $8,398 in credit card debt. Not only is that a large amount of debt, but is typically associated with a high interest rate.
Unfortunately, credit card debt is a slippery slope. What starts out as one minimum payment can lead to a mountain of debt quickly. With that, it is important to get rid of credit card debt as soon as possible. Otherwise, you could find yourself with a mounting credit card balance.
The bottom line
Debt can be a financial burden that puts a strain on your long-term financial goals. If you want to build a solid financial foundation, then getting rid of debt is a good start. Decide on a plan of action and move forward today!