If you are paying off monthly dues from your credit card bills, student loans, and car loans, then you’re not alone. In fact, according to the latest record of household debt and credit from the Federal Reserve Bank of New York, the total household debt as of the third quarter of 2019 rose to $13.95 trillion in the US.
With these significant digits in mind, you can say that troubling about debt is a national epidemic. However, getting out of debt is something you can do yourself. With that said, here are some of the smart tips and strategies you can use to get out of your loans and mortgages the quickest way and become debt-free for good.
Pay Off Your Debt From The Highest Interest Rate To The Lowest
One of the smart strategies to pay off your car loans, credit cards, student loans, and other forms of credits is by paying them through the debt avalanche method. This payment strategy works by making minimum payments on all your debt, then using your remaining money to pay the loans with the highest interest rate.
Furthermore, once you entirely paid your debt with the highest interest rate, you can dedicate your extra repayment fund to your next highest-interest loan. If you choose to pay off all your balances using this strategy, you should continue this system for accurate progress until you’re done paying all your loans and debts.
Use The Snowball Method To Pay Off Your Debt
Another proven effective debt-reduction technique is the debt snowball method. In this strategy, you have to follow the smallest to largest order of paying off debts. That means you need to focus on paying off your smallest debt first up to the most considerable money you owe to gain momentum as each balance is paid off.
Here’s an overview of how the debt snowball method works to pay off your loans and credits:
- The very first step you need to do is to make a list of your debts from smallest to largest. In writing your list, you need to disregard the interest rates and record your debts based on the remaining balance.
- Then, you have to make minimum payments on all your debts except for the small ones. You need to attack your smallest debts at one hit!
- After you have paid off your smallest balance, take the money you were paying on that debt and roll it into the next larger mortgage. In theory, by the time you reach the final debts, the extra amount paid to the larger credits will increase — just like a snowball rolling downhill and accumulating more snow.
- Lastly, you need to repeat the process until you come up with the very last debt you need to pay off.
Moreover, the debt snowball strategy is often applied to repay revolving debt, such as credit card bills. Under this technique, your extra cash might also be dedicated to paying off the smallest amount you owed.
Make The Most Of Every Dollar
Creating a budget is one of the essential keys to any financial plan, especially when you have a lot of debts to pay. The 50/30/20 rule of thumb for budgeting may help you manage your finances and categorize your budget for your needs and cut off expenses for your wants.
In this budget plan, you have to keep necessary expenses like housing to half or 50 percent of your income, allocate 30 percent for your wants, and put the 20 percent for your debt-paydown and savings.
However, since you are aiming to pay off your debt as early as possible, you can use the money allocated for your “wants” to make extra payments for your loans and other debt. By doing so, you will wipe out your credit balance faster and also help you save some dollars on interest.
Once You Started, Stick To Your Debt Payment Plan
Once you determine which strategy to use and start paying off your debt, you need to make sure you stick to your debt payment plan. It means making extra payments on your other credits, applying the extra cash to your most considerable debt, or even increasing your monthly payment to pay off your loans as quickly as possible.
Above all, it is also imperative that you stay motivated. With that, a debt payment table or chart where you can track and monitor your progress can help, as well as achieving every milestone along the way.
Debt can only be a four-letter-word, however, if this will get out of control — whether from binge shopping, medical bills or emergency expenses — it becomes an albatross that may affect your physical and emotional health.
With that said, you should pay attention to your debts and start managing your finances. The tips and strategies listed above may help you get out of your loans faster and save you from mountains of interest rate that may become your dilemma sooner or later.