11 Incredible Tips for Eliminating Debt Quickly
The United States is a nation of debt. Between credit card payments, non-mortgage debt, and student loan balances, debt has hit a record high. Everyone has debt and in order to work on eliminating debt quickly, you have to hunker down with some strategies and really focus on your goals.
When it comes to debt, many people get chills just thinking about it. But it’s doesn’t have to be like that. That is if you know how to deal with it. So here are some very useful recommendations for you.
1. Get to Know Your Debt
In order to get started with eliminating debt quickly, you need to gather your debt and get to know your debt. You need to have the complete picture, which means you need to get your recent bill statements for loans and credit cards, your credit report, and your credit score. You want to know your credit score to see if you could be eligible for a lower interest rate or a debt-consolidating loan.
Once you have all your debts, list them with the interest rate, balance, minimum monthly payment, and creditor's name. This will help you be able to start creating a budget.
You can take advantage of personal finance software or a debt tracker to help with knowing all your debt. It’s important that your spouse or significant other is involved in the process. If you aren’t able to see eye-to-eye on finances, it can make getting out of debt harder than it already is. It common for one spouse to take the lead in handling finances, which is fine, but both will need to be on board as you develop a plan for eliminating debt quickly.
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2. Pay More Than the Minimum Payment
You may already know that if you just make the minimum payment it’s not going to help with eliminating debt quickly. Just making the minimum payment can mean it can take years to reduce your debt and that’s if your balances aren’t increasing.
Whether it’s personal loans, student loans, or credit card debt, the best way to pay it down quickly is to make more than the minimum payment. Not only will this help you get out of debt faster but you will also spend less in interest through the life of your loan or credit card. In order to make this strategy work for loans, you do need to make sure that your loan company doesn’t charge a prepayment penalty.
A debt repayment calculator can show you how long it will take you if you are just paying the minimum payments. This can be motivating when you see how long it can take with this strategy to work on a plan to pay it down faster.
3. Know Your Why
Debt free living is a good goal but if you are going to work hard at eliminating your debt, you need to know why you are doing it. Think about your financial goals, both in the short term and the future. It could be looking for a new home or saving up for a vacation. If you have a clear motivation on why you want to get out of debt, it can help you to stick to the plan.
Getting out of debt can take some sacrifice, especially if you are going to be very strict on your budget, so you need to have a clear-cut reason for why you want to get out of debt.
4. Create a Budget
You aren’t going to be able to work on eliminating debt quickly if you don’t have a budget. Creating a budget is the first step but you also need to stick to the budget. A budget will show what you are spending, where you are spending it, and what makes the most sense for where to put your money.
If you want to work on eliminating debt quickly then you will need a bare-bones budget. With this strategy, you are cutting your expenses as low as you can and living on that as long as you can. A bare-bones budget looks different for everyone but it will be devoid of extras such as cable or unnecessary spending. A bare-bones budget is meant to be temporary. Once you are out of debt or much closer to your final goal, you can add back in some spending to your plan.
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5. Sell What You Don't Need
This can be a way to get some cash so you can work on eliminating debt quickly. Take stock of your belongings and if you have stuff that you rarely use or can live without, sell it. Use the extra funds to pay down debt. If you live in a neighborhood that allows it, a garage sale can be the cheapest and easiest way to get rid of some of your belongings. You can also consider selling items through online resellers.
6. Earn More Money
If you want to put more toward your debt to work on eliminating debt quickly, you have to look at ways to make more money. This can be getting a second part-time job or getting a raise at work. It can also mean taking on a side gig or something extra to add some additional money. Options include taking online surveys or walking dogs on the weekends for some extra money. No matter where you are getting extra money from, use this to pay down balances on your debt.
7. Try the Debt Snowball Method
This goes hand in hand with paying down more than the minimum payments in the process of eliminating debt quickly.
If you don’t want to do the debt snowball method, there are other methods to pay down debt. Some experts believe you should pay down the debt with the highest interest rate first. This can help you save money in interest but it’s usually not very motivating in the beginning. Whatever method you choose, be sure to focus on one at a time in order to make the whole process much easier.
8. Negotiate Bills
If your credit card bills are high, it can feel impossible to make any sort of progress on your balances. It’s worth trying to call your credit card company to negotiate. Asking for a lower interest rate can actually be common. If you have a solid history of paying your bills on time, there is a possibility of getting a lower interest rate.
Beyond your interest rate, there are several other types of bills that you can negotiate or eliminate. If you are able to negotiate another bill then you have more room in your budget for paying down debt so even if your bill isn’t part of your debt, it still helps.
Cable, Car Insurance, Rent Payment Bills…
Call your cable or Internet provider to negotiate. With so much competition in the space, many providers are eager to negotiate. For medical bills, even if you have the money to pay them down in full, it still makes sense to negotiate them as much as you can. Car insurance is another highly competitive industry and because of this, you can usually negotiate some discounts with minimal effort. Other ways to save on car insurance can be signing up for online billing, bundling other insurance, or signing up for safe driver programs. Review current coverage and see if you are paying for things you don’t need.
Another bill you may not think to negotiate is your rent payment. Reliable and cleaner renters with a lengthy history can have a good chance at negotiating rates. When your lease is up, ask your landlord for the best deal possible. If you plan to stay a while, offer to sign a longer lease to show that commitment.
Always remember when you are trying to negotiate that the worst anyone can do is say no. There are apps that can also review your purchase history and find any forgotten subscriptions and other fees you may be able to cut from your budget and can help with negotiating some bills down for you.
9. Consider Consolidating
Debt consolidation is a way to regain control of your debt. When you do this, you are taking multiple bills and merging them into one with one monthly payment. You are able to do this on your own or with a debt management company. In order to do this, you take out a loan for the amount of your debt, pay down your debts, and then just make monthly payments. This can make it much easier to manage your debt and you may be able to get a lower interest rate on your loan than you could be getting from your credit card company.
In order to decide if debt consolidating is right for you, you need to understand your credit score, how it will impact your ability to get a loan, and if the interest rate you get on the loan is actually going to be worth it. You also need to understand your finances and know what you can afford. The more information you have, the better able you will be to decide between all your options.
Instead of getting a personal loan to consolidate your debt, if you own a home, you can consider a cash-out refinance. You can also use a debt service to help with consolidating, no matter what method you want to do.
10. Consider a Balance Transfer
If your credit card company just won't budge on your interest rate when you try to negotiate then you can try looking into a balance transfer. With a balance transfer, you may be able to secure 0% APR for up to 18 months. You will likely need to pay a balance transfer fee for this. If your credit card balance is manageable enough that you could do this, it could be worth it.
The fee to do a balance transfer is usually about 3% of the balance, though there are special promotions that can waive these fees. There are also many cards that will limit the size of your transfer.
If you are able to find a new card with a low-interest rate or a no balance transfer fee and a credit limit that is high enough to accommodate your previous balance then a balance transfer can be a good idea. With this method, your payment is going toward paying off principal instead of just paying down interest.
In many cases, you will need a good or excellent credit score in order to get the best introductory offers. Balance transfers aren’t a good way to avoid late payments or to work on improving your credit score. The transfer will take about two weeks and, during this time, you still need to make payments to the card company you owe money to.
11. Drop Expensive Habits
If you are in debt and consistently coming up short every month then you need to do something about your spending. Even if you aren’t trying to pay down debt quickly, it still helps to look at the small ways you are spending money everyday. You need to evaluate whether the purchase is worth it and come up with a way to eliminate those that aren't or minimize them.
If it’s an expensive habit, such as drinking or smoking, then you should work on quitting as an easy way to add more money to your budget. If your expensive habits are things like a daily latte or fast food then it helps to cut down and then slowly eliminate the behaviors and replace them with something less expensive.
Mistakes You Are Making When Eliminating Debt Quickly
Eliminating debt quickly involves more than just paying off your cards. It’s also means changing spending habits, learning to budget, and prioritizing debts. There are mistakes you can make if you aren’t careful and focused on eliminating debt quickly.
Same Old Spending Habits
Many people are creatures of habit and spending money is no exception to this. Everyone stops at the same stores and eat at the same restaurants because it’s comfortable but this can be costing you more than you need. If you aren’t changing your spending habits then you won’t be able to get out of debt. For example, you can have coffee and breakfast at home, bring your lunch to work, and in the evening watch moves on the TV. You don’t have to completely go without but you do need to make better choices in order to start eliminating debt.
Not Understanding Debt Relief Programs
It’s very rare to get a quick solution to debt problems. If you hear this promise, you should look elsewhere. Some people sign up for debt relief programs and don’t understand the whole process and think it’s a way to pay down debt quickly. Debt relief programs will usually take three to five years so you have to be patient. Be sure that whatever organization you choose, it’s licensed and there isn’t a record of consumer complaints.
Not Creating a Realistic Budget
You do need to create a budget in order to start eliminating debt quickly. However, the budget needs to be realistic and address your housing, health care, insurance, education, and food costs. Your budget will also still need to make room for debt payments. Start putting away the credit cards and only pay with cash. This can mean reducing things such as dining out, entertainment, cars, or electronics.
Trying to Work on Multiple Debts at Once
Those with multiple debts will sometimes try to address each one every month. This is a bad move and you want to focus on one at a time in order to work on eliminating debt quickly. Whatever method you choose to do this is up to you but many people prefer the debt snowball method.
Closing Accounts Once Paid Off
You want to pay off the account in order to get out of debt but you don’t want to close it out completely. Your credit score will depend on how much credit you have available. If you close the account then that lowers your credit utilization score.
You Aren’t Contributing to Your Retirement Account
Just because you are paying down your debt doesn’t mean you should stop contributing to your retirement accounts. You need to begin saving for retirement as soon as you begin working. Time is the most powerful tool when it comes to retirement savings. The earlier you start contributing to a retirement fund, the better you will be when it’s time to retire. Find other areas in your budget to cut instead of your retirement account when you are paying down debt.
Not Having Emergency Savings
Many people don’t have enough in savings to cover an unexpected expense. It can be impossible to project when you could get into a car accident, have a home repair, or lose your job, which is why you need an emergency fund. You should have three to six months of expenses set aside for emergencies. It can take you a while to get to that point if you are focusing on paying down debt but it needs to be part of your monthly budget. Set aside 5% of your income to add to the emergency fund until you have saved three months’ worth of expenses.
Not Checking Your Credit Score
You should be checking your credit report to note if there are an inaccuracies. You are entitled to a free credit report each year. Split them up and get one every fourth months. Check them closely for any delinquencies or balances that aren’t correct that could hurt your credit score.
Not Actually Prioritizing Debt
Most people have debt and the difference between those who pay it down and those who don’t is the focus. You need to be focused in order to work on this. You need to have your strategy and your budget and stick to it. Use little tricks to help you. For example, tape a piece of paper to your credit card so that every time you reach for the card you are reminded that you are adding to your debt and contributing more to the problem.
Ways to Stay Out of Debt
Once you pay off your debt, it’s important to stay out of debt.
Stop Using Credit Cards
You shouldn’t close your accounts but should only use credit cards if you are able to pay off the balance in full each month to avoid getting into debt again. If you have a hard time letting go of your cards, freeze them in a cup of ice. By the time you are able to get to them again, you may have thought about it and changed your mind about spending. Learn about using your credit card responsibly, or stop using them completely.
Make Cuts to Spending
When you have paid off your debt, you may decide you don’t need your budget anymore. However, you want to still make cuts to spending and stay on a budget. Your budget may not be as strict as it needs to be while you are paying down debt but having a budget can keep you from spending more money than you are bringing in every month.
Limit Housing Expenses
Many people have housing expenses that account for at least half of their monthly take-home pay. With living expenses this high, you are more likely to make financial sacrifices in other areas, such as retirement savings or healthcare, and are more likely to get into debt. If you can lower your household expenses, you can work to stay out of debt by not stretching your monthly budget so thin.
Minimize Auto-Related Costs
Transportation costs make up a large portion of a budget behind housing. While auto loans aren’t normally a big source of a debt problem, expensive auto repairs can be a common cause of credit card debt. When you are purchasing a car, a larger down payment man means less debt to pay off. The loans you normally get through the auto dealership will be more expensive than something from your bank or credit union. Always shop around before you get an auto loan.
Pay Yourself First
Staying out of debt requires that you have an emergency fund or savings to rely on if you are faced with an unexpected expense. If you make automatic contributions to a savings account that is earmarked for emergencies with every paycheck then you can stay out of debt when you have an emergency pop up.
Avoid Unnecessary Fees
Overdraft and non-sufficient funds fees can really add up. The most common credit card fees include those for late payments, cash advances, balance transfers, and returned payments. Read the fine print on your cardholder agreement and the terms and conditions of your banking institutions so you know what fees there are. For example, some credit cards will offer a grace period on new purchases and you can avoid paying extra fees when you pay off the balance in full by the due date. Credit cards with annual fees are usually the most attractive option for the benefits. These are cards that offer huge rewards programs but you do have to pay every year to use the card. In order to make sure that the cards are worth the fee, you will usually need to use them a lot and spend big. You should only do this if you have the means to pay it off, otherwise, this can just get you into debt again.
Don't Give Your Budget a Raise
Once your earning power increases with a raise, bonus, tax refund, or cost of living increase, you should put this money into an account that is paying interest instead of spending it.
Pay Attention to Interest Rates
You shouldn’t be going through a continuous cycle of refinancing since this can lead to unnecessary fees you want to avoid but you should always keep lower interest rates in the back of your mind. There are some good times to refinance or negotiate lower interest rates. If your credit score has improved since you have opened the line of credit, consider calling to negotiate. If you are able to refinance once the Fed has lowered interest rates, this can also help you save money each month to stay out of debt.
Final Thoughts
Eliminating debt quickly can take some patience and some structure. You need to understand why you are doing this and then lay out all your debts and start to formulate a plan. Cutting back on your spending and figuring out ways to earn some extra income can really make a difference when it comes to eliminating debt quickly. You want to avoid some common mistakes that can be easy to make while you are working on paying down debt. Once you have paid down your debt, you need to work on a strategy to avoid getting into debt again.