At Untold Clue, we try to help you to make more brilliant financial decisions. This post may contain references to products from our partners. This article includes various strategies such as Debt Snowball, Debt Avalanche, Debt Consolidation, and a few other tips that you can use to pay off your debt. Before we head towards how to clear debt fast, take a chill pill cause you’re not alone.
A study from Experian in 2021 shows that the average American has a consumer debt balance of $96,371, including student loans, mortgages, and credit card balances. Whether your debt is more or less than that amount, it can feel challenging to manage.
If you’re struggling to pay off your debt, then you can stay relaxed now because there are some options that may help you stay afloat financially. You can use specific strategies discussed in this guide, like the debt avalanche or snowball method, or use any other method to break the chains of debt bondage.
Strategies for paying off debt.
For an average person, it might have taken just a few months of unemployment excess spending to get into debt, but it will likely take longer to pay it off. Therefore it is important to commit to a plan and not get discouraged by any upcoming setbacks.
So regardless of how you got into debt, you’ll need a plan to pay it off. Here are some of the strategies to help you get started.
1. The Debt Snowball.
The Debt Snowball builds momentum as you start repaying your creditors, like rolling a snowball down the ground. Begin by paying off the smallest to larger debts. All you have to do is that you need to list the balance from smallest to largest and start to pay from the smallest.
In the process, you need to pay all the minimum bills and send the extra cash to the debt with the smallest balance until it’s fully paid. Repeat the strategy with the other debts. As you pay off the balance, you’ll free more funds for other debts.
Who is this best for: The Snowball method is best if you want to experience quick gains when paying off your debts.
2. The Debt Avalanche.
The Debt Avalanche method is similar to the snowball but in this method, we need to order the debts by interest rate. First, we need to list all our debts from highest rate to lowest rate. Then we concentrate on paying the highest-interest debt while making minimum payments on other debts.
This cuts back on the amount you’re paying on the interest, which also frees up more cash to pay off debt. This method saves some money from the higher-interest debt and makes it easy to clear the remaining small debts.
Who this is best for: It is suitable if saving a bundle in interest is a priority, and you’re motivated to get out of debt quickly.
3. Debt Consolidation.
In Debt Consolidation, the lender pays off all your existing debt and rolls it into one new loan with payment. While the new interest rate might be higher than some of your other bills, you could wind up saving money by avoiding missed and late payment fees.
To determine if it’s a smart strategy for your situation, you’ll need to calculate your blended interest rate. It’s the combined interest rate paid on all your debts. It’s calculated by summing the total interest you’ll pay in a year and dividing it by the entire principal owed.
Who this is best for It is best if you can commit to not using your credit cards or acquiring more debt while you work to pay off what you owe.
4. Debt Management Plan
Different Nonprofit credit counseling agencies can help to set up debt management plans with debtors. An agency will negotiate concessions on your behalf with the companies to which you owe money. This method is best to entail arranging for lower payments, setting up reasonable repayment plans, and possibly securing debt forgiveness.
Who this is best for: It is a viable option if you struggle to keep up with your minimum monthly payments and prefer a plan that can help you pay less in interest and get out of debt faster.
Tips for Paying Off Debt
Okay, so now that you know a few strategies to clear debt fast, follow these steps to stay on track:
1. Stick to a budget.
Whatever strategy you choose, you’ll need to create a budget for yourself. Staying on a budget helps to limit your unnecessary expenditure and will save some money. Otherwise, it will be too easy for you to get off the track. With a budget, it’ll be easy to see where each dollar is going.
You can use an app or spreadsheet to create a budget for you and once you see all your income and expenses laid out, you can start planning for how to pay off debt. Subtract your fixed expenses from your income – that’s your free cash flow. That money is what you have available to cover variable costs and pay down debt.
2. Start an emergency savings account.
In your everyday life, anything unexpected things can happen to ruin all your plans to get out of debt. Life will continue to occur while you’re focused on how to pay off your debt, which is why you need an emergency savings account.
As much as you may want to put every extra penny toward your credit card balance, if you’ve paid off half your balance but then can’t pay for an emergency, you’d just have to charge it again.
3. Reduce monthly bills.
If you’re wondering how to save some money and pay off your debts then consider reducing your monthly bills. Lowering your monthly bills can save you some money to clear debt fast.
Ask yourself a question, is there something unnecessary that is sucking your money out? Maybe drop Netflix or cable for a few months and save up free time for some side hustles. If the heating bills have been out of control, many utility companies offer free energy audits, which would identify changes you could make to curb utility costs.
4. Earn extra cash.
Having a side hustle has almost become an American Institution, right up with apple pie. Many people now maximize free time by making jewelry to sell on Esty, driving for a ride-sharing service, or dog sitting. The answer to the question “How do I pay my debt?” can be inspirational ways to earn extra cash.
What are your hobbies? Do you have any special skills you could monetize? Which gigs would work with your daily schedule? Find a way to secure extra cash flow and apply those earnings to paying debts.
5. Explore debt relief options.
Debt relief companies make grand promises to help solve problems like how to pay off debt, but do they deliver? Yes and no. When you sign up to work with a debt relief company, it negotiates with your creditors to settle or attempt to change the terms of your debt. But there is a catch.
Debt relief companies charge fees for services. To increase a creditor’s willingness to negotiate, the company may urge clients to stop making payments on their bills. But this will lead to late fees, interest charges, and other penalties that increase debt and hurt credit scores.
The companies can also help settle or manage some bills, but they could ultimately do more harm than good. Explore all other options before deciding to work with one.
The bottom line.
In the end, you need to know that there are no secrets to paying off your debts. It just requires discipline and a plan. Taking time to sit down and make a plan will definitely pay off in the long run.