10 Best Ways to Get Rid of Debt
Few are completely out of debt these days. You may have student loans, a mortgage, your credit card balances, and / or other debt obligations. These top 10 tips can help you reduce or eliminate that debt so you can accumulate wealth and finally focus on your other financial goals.
10. Know the difference between good and bad debt.
Some personal finance experts believe that all debt is bad, but this is not necessarily the case. A loan can be critical between earning the degree you need for a high-paying job, like owning your own home or starting your own business, and losing those opportunities. Assess your debt to find out how much debt you have so you can pay it off first or use your money for other purposes. Two simple questions can help you decide if debt is “good” or “bad”: is it temporary debt or a lifestyle? Is it worth it?
9. Reduce the cost of student loans.
The average person has $ 27,000 in student loan debt — a huge burden. The good news is that you can refinance your student loans and save over a thousand dollars in the process. You may even be able to get forgiveness or student loan payment from your employer and pay off that debt in full. If you need help managing your loans, Tuitio.io can help you find the most effective student loan repayment plan , or you can use simple Excel formulas to compare different student loan options.
8. Pay off your credit cards with a debt consolidation loan or balance transfer.
You’ve probably received offers in the mail that promise to consolidate all of your credit card debt into one low-interest account — either through a debt consolidation loan or through credit card balance transfers. Is this a good idea? Despite their appeal, debt consolidation loans usually don’t make sense if the loan will cost you more in the long run compared to paying off your card faster. In the case of offers to transfer credit card balances (for example, 0% promotional APR), you will have to pay a commission to transfer your debt to another card and make sure that you pay all the debt before the end of the advertising period. In both cases, do the math to make sure it’s worth it. (By the way, you could negotiate a fee for transferring credit card balances .)
7. Early payment of the mortgage
Your mortgage is probably the largest loan you have ever taken out and some of us are very keen to get rid of it as soon as possible. Paying off early gives you peace of mind and financial freedom, but the low interest rate means it might make sense to invest your money instead of paying off that debt early. Experts disagree on this , but if you want to pay off your mortgage early and save thousands of dollars in interest, make additional core payments , such as half of your mortgage bill twice a month . However, don’t use your lender’s two-week mortgage plan and set it up yourself to save money . If possible, get rid of the escrow requirement with the lender and pay taxes and insurance yourself. Another way to get rid of your mortgage faster and save tons of money is to refinance either a short-term loan or a loan with a lower interest rate (and keep making larger down payments). Find out if refinancing is worth it here .
6. Use the debt snowball method to pay off all your debts.
With the snowballing method of debt repayment, you use most of the money you have to pay off one loan and the minimum payments on others. Then, when the first loan is paid off, you take on the next loan, and so on, until you are completely out of debt. This Excel spreadsheet will help you create a snowball payment schedule. If you’re unsure whether you should pay off your lowest balance first (for motivation) or the one with the highest interest rate (which makes more financial sense), consider a Blizzard payment method that combines both strategies.
5. Agree on the credit card interest rate and loan amount.
A lower interest rate will help you pay off your credit card balance faster. All you have to do is ask , and if successful, you could save hundreds or thousands of dollars, depending on your credit card balance. If you have medical bills — one of the biggest sources of financial distress and a common cause of debt — you can get financial help from a hospital or discuss the medical bill . You may be able to pay off other debts if you cannot pay them off in full.
4. Pay your heaviest debts first
All debts are painful and can affect us emotionally. While there are many approaches to dealing with debt , consider paying back the ones that have the most emotional impact on you . For example, pay off a family loan before you pay off your credit card. In addition, personalizing a debt can make you more motivated to pay off it faster: first of all, remember what you bought with this debt so that you don’t run into even more debt or feel better when you pay it off.
3. Pay off debt and invest at the same time
You want to get rid of your debt, but you need a contingency fund, and you don’t want to miss out on compounding to help with your retirement savings. It doesn’t have to be an either-or situation. You can pay off debt and invest at the same time . Perhaps bet on the most expensive debts ( with an interest rate above 6% ) and save some money. Reserve fund, debt and retirement budget . This hybrid approach addresses our emotional needs as well as our financial goals.
2. Use “extra” money to pay off debt
As we mentioned in our step-by-step guide to choosing debt , you can find extra money (like from selling crap you don’t need) to pay off your debt or add to your savings. Send gifts, bonuses and other “found” money to pay off debts.
1. Stop increasing your debt
Paying off your credit cards is the best financial return on your money if your cards have high interest rates, but it really won’t help you start paying off your debt if you’re only going to keep the habits that may have caused you to accumulate it in the first place. queue. Some people are adopting a cash-only policy to avoid being in debt. Whatever you do, make sure you have a plan for what you are going to do with the money that will be freed up after you pay off the debt, for example, set up automatic payments to your savings. Give your money a purpose , avoid the most common mistakes that make us indebted , and enjoy freedom from debt. Indeed, you can live a rich life without borrowing (at least too much) .
Illustration by Tina Mailhot-Roberge.