People can become incurring of debts in a very short time while taking time to pay those debts can take ages. Debt in the same way distresses and makes you acutely uncomfortable as you tend to look for ways to make up for it. However, people have devised certain tricks and strategies to assist them in paying off their debts within the shortest time possible. The following are some of the tricks people apply whenever they want to pay off their debts much faster.
The Debt Snowball Method
Debt snowballing is among the most popular tricks applied under the strategy of paying off debts quickly. Here, you arrange all your debts according to their balances starting from the smallest one. You then pay as much money as possible towards the smallest debt as well as other debts to eliminate it first. In a snowball method, after the smallest debt has been fully paid, you apply the money that would have been used to pay that debt to the next smallest and continue this process until all the debts are paid off.
The main Psychological advantage of this method is that as each debt is paid in full, there is a feeling of getting going and progress, giving the individual morale to continue. The disadvantage of that is that it may take a longer time to clear the high-interest debts if they hold larger balances in those accounts. But the instant gratification received from implementing these quick wins keeps the motivation going.
The Debt Avalanche Method
On the same note, like the debt snowball, the debt avalanche approach arranges debts from the smallest balance to the highest. However, instead of eliminating the accounts with the lowest balances first — at which level you pay the debts with the highest interest rates first, regardless of balance. Any surplus cash is paid to the credit with the highest interest rate possible to reduce the amount of interest charged.
It may cost you more in interest in the short run, but it saves most money since you are eradicating high-interest charges first. The drawback is that it takes time for the figures to change for the better as such debts usually have higher amounts. But you optimize total cost thus making this a very efficient method of cost management.
Balance Transfer Credit Cards
There are many reasons why balance transfer credit cards can be useful to get into, including the fact that multiple high-interest debts can be combined and paid off all at one time while the actual interest rate is reduced for some time. In particular, the transfer of balance in many credit cards can be done with an interest rate of 0% for the first 12 to 21 months. The purpose of the balance transfer to the new card is just to protect from the interest rate on purchase and the amount of debt during the grace period.
The only thing you should watch out for is to have arrangements on how to completely clear the balances before the end of the intro APR period. For any balances, that remain, they attract high retroactive interest. Be just as careful with Balance Transfer Fees, which tend to lie anywhere between 3-5% of the transferred balance.
Debt Consolidation Loans
Unlike balance transfers, debt consolidation loans entail obtaining a new loan to pay off multiple debts with the hope of getting a lower interest rate. Debt consolidation is usually done by availing personal loans or home equity loans where other high-rate debts are given into one payment at a better rate and would therefore mean saving on interest after some time.
The downside is that this strategy can only be achieved if the person is eligible for a consolidation loan and if the person did not incur more debt before paying off the consolidated one. The discipline is needed for this to work to the desired outcome.
Budgeting and Paying More Than the Minimum:
Several customers find it hard to repay their loans, this is explained by the fact that they do not set a spending plan or they pay only the minimum amount allowed per month. Employing a budget that sets aside a little more cash than the regular payment towards the debt helps guarantee that you pay off the debt in an organized way that goes beyond the regular payments.
Just $20 or $50 a month more than the minimum payment helps in paying off the balance and thus paying off the debt faster due to a reduction in principal. Try to review your budget as often as possible then try to look for areas where you can trim the expenses so that you can allocate as much cash as possible towards the elimination of debts to the extent that they are eliminated.
Sell Unneeded Items
Selling off clothes you no longer wear, CDs and DVDs you haven’t listened to or watched in ages, books you’ve read, toys your kids don’t play with anymore, etc from your closet or storage room is also a great way to make quick cash which you can then apply towards your debts. The availability of applications and platforms such as eBay, Craigslist, FB Marketplace, Poshmark, and others allows for easier selling of unnecessary things collecting dust in one’s house.
Those few dollars here or there from selling things you no longer need, such as old clothes or gadgets, can help build up in the long run. All the dollars you can contribute to paying the principal debt balance will assist you in getting out of the debt quicker and ultimately be cheaper due to reduced interest charges.
Looking For an Additional Source of Income
Looking for a more fluid job that can be done alongside a regular job is another strategy that most people use to supplement their income that can be used to fund debt repayment exclusively. Dealing with Uber, being a tutor, food delivery, freelancing, etc., have become rather normal ways to earn €100-€500 more or even more per month.
The idea is that instead of using such extra income-generating earnings from side jobs, one should use it to pay off the debts that they may have. It only takes about 10-15 hours a month of constant side income with rates starting at €15 per hour to get rid of small to medium debts in a year or two.
Cut Expenses
A rather simple but not very popular tactic for getting out of debt is to cut as many expenses as possible for the month and use the savings to pay off the debt. This could mean mustering the courage to downgrade the cable TV package, negotiating to get cheaper auto insurance, decreasing the amount spent on groceries, eating out less frequently, canceling unused gym memberships, or switching to a cheaper cell phone service.
The saving of €20-€50 per month doesn’t sound much but when all such frills are chipped in collectively, a reasonable sum is saved. Cultivate an ultra-paranoid view toward avoiding even trivial increases in monthly expenses to devote more cash to extinguishing obligations. Savings means less money you use for repayment and more you can use to make the repayments early.
Automate Payments
This way establishing a monthly automated process of paying back debts helps to avoid missing any particular date. All banks and other lending institutions provide the option of automating monthly payments from a checking account to a credit card or a loan payment.
This also eliminates late charges; the same way, that paying weekly or biweekly instead of monthly may reduce the level of the debt faster since the higher amount is applied to the principal rather than the interest. This is because you can choose to set the method to auto-pay so that it runs automatically without your constant intervention.
Amazingly, people come up with so many inventive ways to increase debt repayment rates. Here is the truth: After a while, we get bored and lose steam and that’s why it’s important to identify a strategy that keeps you focused and on the lookout for small victories that will make you continue with the effort of eliminating debt. The basic idea that lies behind all of these strategies is to try to invest as much cash as possible to pay off the debts in the correct order.
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