If you’re in debt, there are several strategies for paying off your balances and becoming debt free faster. One way to do this is by consolidating your debt with a personal loan, which can save you money in interest costs.
Another way is to use a windfall like a tax return, bonus or gift toward debt reduction. You can also follow the debt snowball method.
1. Create a Budget
One of the most important steps in eliminating debt is creating a budget. This will help you see how much you are spending each month and where your money is going.
You can use a tool like Rocket MoneySM or your credit card and bank account statements to track your spending. You can also reduce your spending by eating out less or canceling unused subscriptions.
Another great way to save more money is to increase your income. This can be done by working overtime, asking for a raise or even switching jobs. You can also sell items you no longer use, start a side hustle or find other ways to make extra cash.
2. Reduce Your Monthly Bills
Once you have a budget and a plan to pay off debt, it’s important to make every effort to reduce your monthly bills. Services like Trim and TrueBill can help you find bills that could be lower or eliminated, which can save you a significant amount of money.
It’s also a good idea to avoid taking on new debt, unless it is necessary for your financial goals. In addition, you should try to pay more than the minimum debt payment each month. If you’re able to, this will speed up your debt payoff timetable significantly. It will also save you money in the long run.
3. Focus on the High-Interest Debts
While it may have taken a few months or even years of excess spending to accumulate your debt, it will take time and patience to pay it all off. While it can be helpful to try different strategies like the debt snowball or avalanche methods, or to use a personal loan to combine multiple balances into one payment, you should focus on reducing your interest rate first.
The debt avalanche method prioritizes paying off credit cards by their interest rates rather than their balances, and once the card with the highest rate is paid off, the extra payments are applied to the next highest rate, and so on. However, this strategy can feel slow to see progress and might discourage you from sticking with it.
4. Get a Debt Consolidation Loan
Juggling multiple debts can be stressful, and a debt consolidation loan can help you by combining your debts into a single payment. There are several different ways to do this, including personal loans, balance transfer credit cards and cash-out refinancing on a mortgage.
When choosing a debt consolidation option, look for the best rates available to you. Also make sure that your cash flow can comfortably cover the monthly loan payments, since debt consolidation typically comes with fees and a credit check. It’s also important to keep in mind that debt consolidation isn’t a magic bullet and you should still work to change the habits that got you into debt in the first place.
5. Make Payments on Time
While you are working to pay off debt, it is important to make your payments on time. A late payment could cause your credit score to decline, which will slow down your progress toward becoming debt free.
To stay on track, use a tool like Rocket MoneySM to see all of your debt payments and expenses in one place. This can help you identify areas where you may be able to cut back and put additional funds toward debt repayment.
The debt snowball method is an effective way to build momentum as you start paying off debts. It involves listing debts by their balance and starting with the smallest balance first.
6. Make Extra Payments
Depending on your budget and situation, you may be able to make additional payments to help speed up the debt payoff process. This can include cutting back on unnecessary expenses like eating out or unused subscriptions (try Rocket MoneySM to see how much you could save).
Another option is the debt snowball method. This involves listing your debts by balance and then paying off the smallest one first. It builds momentum as you start to see your debts disappear and can be an encouraging way to stay motivated on your journey to becoming debt free. You might also consider ways to increase your income such as getting a second job or negotiating your salary at work.