How to pay down debt fast

How to pay off debt quickly

Start decreasing your overall debt levels today by following these strategies. 

Understand your debt

The first step towards a debt-free life is to understand your debt. Confront your debts head-on. Gain a holistic overview of your debt profile. The best way to do this is by writing down each debt you have. Include whom it is owed to, how much is owed, and how much the minimum payment per month is. Ask questions like:

• Where is my debt coming from?
• Do I have unpaid student loans?
• Do I have unpaid credit cards or is there a mortgage payment I have defaulted on? etc.

It is not always fun writing down what you owe, and you may get scared at the figures. However, this is the best way to start and it is very important too.

Budget To Pay Off Debt 

You will need to know just how much debt you can afford to pay off each month. This is where budgeting comes in. Budgeting ensures that you do not pay down some debts while incurring debt somewhere else. It also helps you keep track of your income and spending. There are free budgeting tools available online that you can utilize to this effect. 

Debt restructuring

Restructuring your debt can help to lower interest payments, thus making more money available to help you get debt-free faster. Based on the type of debt you have, there is a chance that you are paying more interest than you need. Debt restructuring can be done in different ways:

Switching to lower interest rates on your credit card

Many credit cards usually have high-interest rates, which can have a huge impact on your finances. You can request a lower interest rate on your credit card, if available. 

Debt consolidation

Paying debt off by consolidation works in two ways: you can either consolidate what you owe, or you can consolidate payments. If you have multiple credit cards or loans, you can combine them under a credit application to leverage on lower annual interest rates or payments. Speak to a banker or credit counselor to understand if debt consolidation is right for you and if you qualify for one at a good interest rate.

Pick a debt-paying method

Once you have completed the preceding steps, choose a method to pay down your debt. Two of the most effective ways to pay off debt quickly are the avalanche and snowball methods. These methods help you determine which debts to pay off first.

The debt avalanche method

With the debt avalanche method, you pay off debt with the highest interest rate first. Once complete, you move to the debt with the next highest interest and on and on. It ensures an efficient way to pay down debt. 

The debt snowball method

Many Canadians find it easier to stick to this method. Here, you start by paying off your smallest debt first, hence the term “snowball”. These little steps create a sense of accomplishment, thus generating momentum to pay off the next debt. 

Practices to imbibe while paying down debt

Your debt did not appear suddenly, it accumulated over a period. Similarly, they cannot be offset in one day. It will take time to pay off your debt. However, while paying off your current debt, you do not want to incur debt somewhere else. To prevent the onset of debt, you should imbibe some practices. They are discussed in this section.

Reduce your expenses temporarily

Budgeting helps to keep track of your expenses so you can know how your money is being spent. Review the way you spend money so you can have extra money towards paying off debt. You can reduce your expenses by cooking your meals, canceling unwanted subscriptions, saving on grocery shopping, or nixing memberships. Negotiating better deals, cutting your energy bill, and DIY car maintenance can also help to free up more cash. 

Find extra money

Create an additional source of income by picking up a side hustle. This way, you increase your income thus generating more funds towards servicing your debt. When looking for a side job, find something that will not take up all of your free time. You can pick up freelance writing, be a blogger, work an extra shift, take a class online, or do online surveys. 

You can also get money by selling things you do not need. It could be old clothing, sports equipment, or an extra gadget. You can also sell things you make or do as a hobby e.g. photography or handcraft. The idea is to generate extra funds to pay off your debt. 

Ensure you have Savings for emergencies

As much as you want to pay down your debts quickly, learn to save for emergencies. Nothing hinders your debt reduction progress faster than an unplanned expense. While creating your budget, include savings for unexpected expenses so there is money on hand to settle part of what you need. 

Avoid the use of Credit Cards

Credit cards make the accumulation of debt very easy. Put away your credit cards and pay for things either with cash or debit cards. Rather than carrying your credit cards, store them in a safe place. While paying cash (or using debit cards) affects your checking account, credit cards give the illusion that you have excess funds. 

Conclusion

You can get overwhelmed by looking at your debt profile, but you can take the bold step of paying them off. This article discussed approaches towards paying down debt, as well as good lifestyle habits to imbibe while paying them off.