The Fastest Ways to Get Out of Debt
Many Americans struggle with debt, and it is one of the most commonly reported sources of stress and negativity in people's lives. Fortunately, with proper planning and dedication, it is possible to become debt-free and live a financially productive life.
Read on to learn the basic strategies to learn how to get out of debt fast.
Build a Budget
Many people have trouble getting out of debt because they never sit down and take stock of how much money is coming in and going out.
The very first thing one should do is tally up all their regular monthly expenses, such as rent, utilities, car payments, and food bills.
The next step involves determining how much is being taken home per month in income after taxes.
When individuals take the time to calculate how much they have each month to devote to paying down debt, they are better able to plan and adopt a strategy.
Pay Off As Much As You Can Each Month
The more one pays towards their debts per month, the quicker they will be able to pay them off. For example, making only the minimum payment on one’s credit card will take years to pay off.
Even with a balance of just $2,500, making the minimum payment of 2% each month will take over 20 years to pay off and cost the individual nearly $10,000.
The bottom line here is that the more one puts towards paying off their debts, the better it will be for them in the long term. Those who have trouble finding extra cash should explore the debt snowflake strategy for help.
Try Not to Use Credit Cards
Credit Cards are the most common source of high-interest debt amongst Americans, with the average American carrying a balance of $10,000 or more. The best way to stop a growing credit balance is simple - stop using it. While this may be hard at first, it will force individuals to spend within their means. When using cash or their debit card, they will be spending funds they already have and avoid sliding deeper into debt.
A financial windfall is when an individual suddenly and unexpectedly receives a large sum of money. Common examples of financial windfalls include lottery winning, inheritance, and gambling gains.
Although this option is not likely to be available for many people, those who are fortunate enough to find themselves in this situation should use their newfound financial position to pay off their debts, especially any debts carrying high-interest rates.
While most people have a vastly different idea of how they will spend their money, whether a new car, first-class vacation, or an upgrade in living conditions, the financially savvy choice would be to pay off debts first and foremost.
Give Freelancing a Try
For those who are not lucky enough to be the recipient of a financial windfall, they may have to look for other ways to earn extra income.
Online freelancing work has become the preferred method people have used to do this over the last decade; with jobs ranging from writing, graphic design, web development, UI/UX design, and many others.
Just a few hours a week can produce a valuable income stream that one can use to pay down their debts faster.
Clear High-Interest Rate Debts First
There are two predominant debt reduction strategies that people use: the debt snowball method and the debt avalanche method. The latter has individuals focus on their highest interest-rate bearing debts first whereas the former tells debtors to clear their smallest debts first.
The idea behind paying off the smallest debts first is that individuals find it easier to stay dedicated because they see more progress more quickly.
While this concept may have some merit to it, paying off the highest interest-bearing debts first is by far the more financially intelligent option.
By doing this, individuals ensure they pay the least amount of interest as possible, something that the debt snowball method does not offer.
Cut Your Spending
No amount of budgeting or debt management tactics will have an effect if one does not cut down their spending. The less one spends, the more they will have to put towards their debt. It is important to remember that this decrease in spending does not have to be permanent; once one’s debts are repaid, they will have significantly more disposable income to spend, save, or invest.
For some people, debt can seem like an insurmountable obstacle and the idea of becoming debt-free may not appear realistic. By following the above advice with dedication, the majority of people will be successful in paying off their debt.