Published in: Banks | June 16, 2019
4 Ways to Become Debt-Free Faster
By: Christy Bieber
Follow these tips and you'll be able to free yourself from the burden of debt faster than you thought.
Having consumer debt is stressful and expensive. When you owe money on credit cards, a personal loan, a payday loan, or a car title loan, a good portion of your monthly income is probably going toward enriching creditors.
This is cash you can't use toward other goals. You could end up wasting hundreds or even thousands of dollars in interest costs in the time it takes to pay back debt.
The good news is that you don't have to be stuck with your debt for a long time. In fact, you can supercharge your debt repayment efforts and pay off your creditors much faster than you imagined if you just follow these four simple tips.
1. Lower your interest rate
Paying off debt when you're paying a fortune in interest is an uphill battle. A big portion of your payment every month goes toward covering interest costs, and you won't even reduce your principal balance by much.
If you can find a way to lower your rate, paying off debt becomes much easier. There are a few different ways to reduce your interest rate.
One option is simply to ask your creditor for a lower rate. Credit card companies may not want to lose your business, so there's a chance they'll accept.
Another option is to get a 0% balance transfer credit card. These cards allow you to transfer existing credit card debt to a new credit card that charges 0% for an introductory period -- often 12 to 15 months. You'll probably have to pay an up-front fee to make the transfer, though it's sometimes as low as 3% of the transferred balance. If you can find a no-fee balance transfer card and pay off your debt before the promotional rate expires, you won't have to worry about paying any more interest on your loan.
Finally, a third solution is a personal loan. While some loans are specifically marketed as debt consolidation loans, any personal loan will do, since you can use the proceeds for anything you'd like. Just be sure you find a personal loan at a lower interest rate than you're currently paying so you can benefit from interest rate savings.
2. Pick up a side gig
Millions of Americans have side hustles to earn extra income. If you're in debt, now's an ideal time to get a side hustle of your own.
If you can earn an extra $50 or $100 a week to put towards your debt, you'll pay off what you owe in no time. There are nearly endless options for side work, from driving for a ride sharing service, to babysitting or dog walking, to working weekend hours at a retail store.
Say you owe $3,000 on a credit card at 15% interest and you're making minimum payments equal to the greater of 3% or $25. You'd be repaying your debt for 116 months and would pay a total of $1,798.86 in interest. But if you picked up a side gig and increased your monthly payments to $400 per month, your debt would be paid off in just eight months, and you'd pay less than $170 in interest.
Working that side job a few hours a week for eight months would save you nine years of repayments and over $1,600. Isn't it worth doing a bit of extra work for a few months to spare yourself years of struggling to become debt-free?
3. Cut your spending
Reducing spending is another great way to pick up some extra cash toward debt repayment. The more you can cut, the bigger your extra debt payments can be, and the sooner you can become debt-free. Some possible ways to cut spending include:
- Giving up eating out. It's not forever -- just until you can free yourself of interest charges.
- Use coupons. You can save on everyday purchases and use the savings toward extra debt payments.
- Conserve gas. Carpool to work or combine trips so you drive less and reduce your transportation expenses.
- Adjust your thermostat. By turning it up in the summer and down in the winter, you can use less heat or A/C, reduce energy costs, and free up more cash for your creditors.
- Cancel cable. There are plenty of low-cost streaming services, and you can always use the library to get DVDs.
- Downgrade your cellphone plan. Are you really using all those minutes and unlimited data, or can you switch to a cheaper plan until your debt is repaid?
Since you probably have your own unique areas where you're overspending, try tracking what you do with your money for 30 days. This will help you identify areas where you can cut spending and free up cash to make extra debt payments.
4. Focus on high-interest debt first
When you have extra money to send to creditors from cutting your spending or earning more income, you'll have to decide which debt to pay off first.
Many financial experts advocate a debt snowball method, which involves paying off your smaller debts first because then you score quick wins and stay more motivated. But if your smaller debt has a lower interest rate than larger loans, you end up paying more in interest over time, as you pay the higher rate for longer by waiting to tackle the big loan.
When your goal is to become debt-free ASAP, focus on aggressively paying down your highest-interest debt. You can always keep yourself motivated by tracking your progress and celebrating milestones along the way, such as reducing your debt by $100 or $1,000.
It's worth the sacrifice to become debt-free ASAP
By following these four tips, you can become debt-free much more quickly than you could if you kept your high-interest loans and made only minimum payments on your debt. Get started with one or all of these tips today so you can free yourself of your debt burden and keep your money instead of sending it off to creditors every month!
Savings account rates are skyrocketing -- Earn 23x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 25x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2019.