Debt Management
So, you’re dealing with debt. You’re not alone. According to an Experian Consumer Debt Study, the average person in the U.S. has more than $100,000 in debt. The truth is it doesn’t matter how you got here. What matters is what you do to reduce and pay off your debt. In this article, we’re going to share the 5 fundamental steps to help you understand how to pay off debt fast.
Carrying debt is a reality for most Americans, and that’s not always a bad thing. Debt may be allowing you to live in a house, have a car, invest in a business, or manage medical bills. However, it’s a tool that can be easily mismanaged. Regardless of how debt is accumulated, paying it off can be grueling–especially if unpaid bills have been damaging your credit score. The important thing to remember is that your debt does not define you and with discipline and strategy, you can pay off your debt sooner and for less interest.
Contact your creditors to see what options are available
It seems obvious, but it’s often overlooked. Call your credit card and loan companies to see if they have alternative payment options available. Some creditors will work with you to come up with options that allow your payments to be spread out and provide more flexibility with your budget. The worst thing they can do is say, “no,” so it’s certainly worth a phone call.
Refresh or create a new budget
We often lose track of our budget when our lifestyles or expenses change. Take some time to revisit your budget and make sure it reflects what your income and expenses look like. Knowing your true financial picture will help you understand what actions you should take to manage your debt better.
The overused trope many of us hear is, “If you’d just stop getting that overpriced coffee…” But let’s get real, a $5 coffee isn’t what got you in this situation. It’s bigger than that. Overspending with credit cards is easy to do because you often have credit lines that allow you to spend more than what you have in your bank account. Take time to review your credit card statements. Are there expenses that aren’t in your budget? When you curb extra expenses, you’re making sure you’re not adding unnecessary debt, while staying focused on reducing the debt you have.
Consider a new debt payoff strategy
Depending on your finances, there are a few methods people use to help them pay off debt. The 2 most common are the debt-avalanche and the debt-snowball methods. With the debt avalanche strategy, you pay off the highest-interest balances first. When you use the debt snowball strategy, you pay off your lowest balances first (no matter the interest rate), then pay off your next smallest debt, before you finally pay off your largest balance.
These methods work for people who can afford more than just their minimum payments each month, so they may not work for everyone. Adopting a debt payoff method can keep you focused on your goal and allow you to see progress.
Think about ways to add to your income
There are several options for side hustles that can help boost your income. Even if it’s only temporary, until you pay off your bills, you could consider picking up a ride-share or food-delivery service gig, turning your hobby into a business with an online storefront, pet-sitting, tutoring, or taking on a seasonal part-time job. The opportunities are endless. By adding more income, you can make more room to pay off bills and manage your debt faster.
Consolidate debt with a personal loan
When you consolidate debt, the goal is to pay off several higher-interest balances with a single personal loan and one fixed monthly payment that is more manageable.
A debt consolidation loan with the following features may help you manage your existing debt:
- A lower, fixed interest rate
- A single monthly payment
- A fixed payment and repayment schedule so you know exactly when your loan will be paid off
Know when to ask for help
Sometimes no amount of budget-wrestling or cutting expenses will help. There are options available if you’re truly stuck and can’t do it by yourself. Bankruptcy and debt management companies can help reduce some debts, but those avenues come at a price. You’ll have fees and the potential for serious negative impacts to your credit score Additionally, be sure to thoroughly research anyone claiming to be able to reduce or eliminate your debt, to avoid potential debt relief or credit repair scams.
Conclusion
Before taking any major financial action, research what’s available. There’s no one-size-fits-all solution for paying off debt. As long as you’re making progress, you’re moving in the right direction. Not every single tactic listed above is going to help you. If you can find a few ways to slash your debt even just a little faster than what you are doing now, it is a win.
If you’re not able to embark on a debt pay-off strategy, continue to make at least your minimum required payments on time to avoid damage to your credit history. Having too much debt can feel like your head is falling below the water, but you can keep treading as you swim to shore. Just don’t quit taking strides to improve your finances and pay off debt, even when it is hard or stressful. There is an end to your debt in sight. You can do it.
This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.