Many Americans will tell you they’re carrying debt through car loans, credit cards and other obligations. It’s more debt than they’d like to have. Half of Americans spend more money than they make every month! The good news is there are several actionable steps you can take to help you get out of debt faster.
1. Establish a Budget
There’s no way around it: To pay off your credit, you’ll need to spend less money each month. To do this, set a budget that includes only what you need to live on and perhaps a small amount more for entertainment. This strict budget will free up money you can use to put toward your loans. There may be times when you feel your morale sinking, but remember that establishing a budget will only help your situation if you stick to it. Remind yourself the present circumstances are only temporary and keep going.
2. Cut Your Credit Cards to Stop the Bleeding
Credit card spending is addictive. It doesn’t take long for most people to grow comfortable with the fact that they can pull a plastic card from their pocket and receive whatever good or service currently interests them. But a lack of full understanding regarding the risks associated with the use of credit cards can quickly lead you to financial ruin.
Don’t be afraid to physically cut up your credit cards to make them completely unavailable as you begin your debt-clearing mission. If not, the same lack of control that helped you accumulate it could contribute to preventing you from paying it off.
3. Pay More than the Minimum Payment to Get Out of Debt Faster
The average credit card debt for Americans is around $7,000 per family. It’s not uncommon to pay interest rates as high as 15% on these lines. Credit cardholders in this position who make only the minimum monthly credit card payments will need more than 13 years to pay off this balance.
One of the best ways to rid yourself quickly of credit cards, student loans and automobile loans is to make monthly payments that are higher than the minimum payment required by the company. All money that you pay above the minimum limit is applied directly to the balance or the loan. This will save you money on interest over the lifetime of the loan and help you free yourself from the burden of the debt a lot faster.
4. Create a Debt Snowball Plan
Once you’ve decided to make more than the minimum monthly payments, you can provide yourself with further benefits by using the snowballing method. This method works by committing all the money you can each month to the smallest loan balance you possess.
Pay the minimum amount required on your other loans until the first balance is completely paid off. The extra money can then be applied each month to your next smallest balance. Bit by bit, your smaller balances will begin to disappear and you’ll be able to commit all of your money to the larger loans you owe.
5. Effectively Use Debt Consolidation Loans
There are two main ways you can use debt consolidation to expedite your freedom from debt.
First, you can transfer some or all of your current loans to a balance transfer card that offers you minimal or zero interest rates. These rates are often promotional and only apply for a certain amount of time. Work to pay off your balance within this promotional period.
The second debt consolidation method is a debt-consolidation loan. You can use the money from the loan to pay off your other debts and then pay off the low-interest debt-consolidation loan in installments.
6. Consider Bankruptcy as a Last Resort
Bankruptcy does not signal the end of your financial world. However, it should only be considered after you’ve tried all other methods of paying off debt.
Experts on credit scores will tell you that nothing will bring your score down as fast or as far as bankruptcy. While this may be true in some cases, there’s much more to consider when it comes to bankruptcy than just the immediate effect it will have on your credit score.
Most people who are considering bankruptcy have likely struggled for years with their debt and are already suffering from the effects of poor credit. Some people have even found that their credit scores increased not long after their bankruptcy proceedings ended.
If bankruptcy feels like your final option, start by reading through this helpful resource about the difference between chapter 7 and chapter 13 filings. Then when you’re ready, schedule a consultation with a local attorney to evaluate your options further.
Final Thoughts on How to Get Out of Debt Faster
Living with excessive debt may cause you to feel that your financial future is hopeless. But with a little hard work and commitment, you can free yourself from the burden of debt. Use these six methods to get started on paying off your debt.