Let’s talk about debt.
Think about the debts that you have currently. In your head, roughly tally them up.
You have debt on your car loan to pay off, a mortgage to consider, student loans that seem like they’ll never end, and credit cards that retain hefty balances month-over-month due to high interest rates and unclear terms.
If you’re truly unlucky, you might also have debts such as payday loans and medical bills on top of all of those “normal” debts that so many of us deal with.
If you add up all of that debt, what does it equal? Is it tens of thousands of dollars? Is it hundreds of thousands of dollars? Is it more than you make in a year? Is it more than you make in three years? Even if you keep up with your payments each month, is there any end in sight?
Do you feel your blood pressure rising yet?
Apologies for the scare tactics; we don’t want to demoralize you. The purpose behind that exercise was to demonstrate just how difficult and unpleasant it is to think seriously about your debt. Once we start adding up all the money we owe, it’s easy to start to panic. The situation can seem hopeless and overwhelming. The temptation to ignore your debt and get on with your life can be very powerful indeed.
That’s understandable. For argument’s sake, let’s try another thought experiment.
First, calculate how much you spend each month just paying off your debtors. If you’re dealing with most of the debts that we outlined above, then this number can easily top $1,000.
Now, imagine how good it would feel to have $1,000 extra each month. You could do whatever you like with it: invest it, save it, spend it on shoes. It’s your money.
Wouldn’t that be great? That’s what being debt-free is like. When you earn money, it’s actually yours to use, not earmarked for some credit card company that is already wealthy beyond anyone’s wildest dreams. Doesn’t that make you want to get out of debt as fast as possible?
Hold on to that feeling of elation. If you follow the 10 tips below for getting out of debt as fast as possible, then it’s that sense of freedom that you’ll be working toward. It might not be easy, but it will definitely be worth it.
1. Face Your Debts Head On
If someone asked you how much debt you owe, could you actually give an answer? Could you give a rough number, rattle off your interest rates, or even provide a rough payoff date for any of your debts?
If the answer is no, don’t feel bad; most people don’t know this kind of stuff off the tops of their heads, either out of ignorance or avoidance.
By reading this article, you’re already making a great first stride to becoming smarter and more savvy when it comes to your finances. The next step is facing your debt head on and figuring out how much you owe.
Collect all of your account statements over the next full month. Go online or just call your creditors and ask how much you owe, what your interest rate is, and what your monthly minimum pay is. Record all of that information down into a spreadsheet so you can look at it all at once.
If you feel dumb asking such basic questions, or embarrassed as to what the answers might be, remember: most people don’t actually know how much debt they owe, and that’s just how creditors like it. They make more money in interest if you resign yourself to just paying your monthly payment and living in debt for the rest of your life. If you really want to stick it to your creditors and save a ton of money in the end, the first step is educating yourself.
2. Go Above and Beyond Your Minimum Payment
As we’ve already mentioned, creditors make more money off you if all you do is pay your minimum payment each month. This fact is one that most people are vaguely aware of, but many don’t realize just how extreme the situation is.
Say you have a credit card with a $6,000 balance and a 24 percent interest rate. Your monthly minimum payment should be about $125, which is no small sum.
To pay off that card with only minimum payments would take you 159 months or well over 13 years. That’s $19,875 over the lifetime of your debt.
If you opt instead to pay $200 per month, that number drops by more than two-thirds: 47 months, just under 3 years. That’s $9,400 over the lifetime of your debt, more than $10,000 less.
Don’t believe these drastic numbers? Calculate your debt. You’ll be shocked to find that if you can just find extra each month to go beyond your minimum payment, you can drastically reduce the amount of time (and money) you’ll spend paying down your debts.
3. Focus Your Efforts with the Debt Snowball or Debt Avalanche
If you’re serious about paying your debts off fast, then you have to be strategic. Usually, this means choosing a debt to focus on more seriously than the others. That doesn’t mean that you stop making minimum payments on your other debts, just that you focus your extra income on a single debt.
How do you choose which debt to focus on? There are two schools of thought: the debt snowball and the debt avalanche. Both have their merits, and choosing one often has more to do with your personality than with your finances.
With the debt snowball, you identify which debt has the lowest total balance out of all of your debts and focus on paying that debt down. Your goal is to eliminate a debt as fast as possible, thereby giving yourself a quick victory and a little extra money to put toward paying down your debts each month. Then, you move on to the next-smallest debt, your victories snowballing as you become a debt repayment pro.
With the debt avalanche, you instead choose the debt with the highest interest rate to focus on, even if that debt will take a while to eliminate. By eliminating this high-interest debt, you significantly slow the compounding of debt each month on your account.
The snowball generally works best for people who struggle to keep up with their debt repayment strategy. Quicker wins lead to extra money faster, keeping them motivated to stick with the plan. The debt avalanche, on the other hand, will probably save you more money in the long run, assuming that you can stand the delayed gratification of eliminating larger, more difficult debts first.
4. Make More Money
Increasing your income makes debt easier to deal with, of course. Getting richer, of course, is easier to say than do. While you should avoid anything that seems like a “get rich quick scheme,” there are a few tried-and-true methods for making more money to pay down debts.
Perhaps the best method is simply to go to your boss and ask for a raise. You don’t have to tell your boss that you’re asking for a raise because you’re neck deep in credit card debt. Just state your case and see what happens. Worst case, your boss says no and nothing changes. Best case, you bump up your income without actually changing your day-to-day life.
Past getting a raise, you might consider getting a part-time job that works with your schedule. Working two jobs isn’t most people’s idea of fun, but since the job isn’t your primary source of income, you can be choosier about where you work. You should try to find a good wage, of course, but if you’ve ever fantasized about learning to become a bartender, now’s your chance.
Freelancing is also an option. If you have a skill, and you think other people might pay you for it, hit the Internet and try to find some freelance work. Among other things, many freelance jobs are flexible about where and when you work, meaning that they may be easier to fit into your already busy schedule.
5. Budget More and Spend Less
This point is even more obvious than the one before, but it’s still worth exploring. Do you want to dedicate more money toward paying down your debts? Then you need to have more money left over at the end of the month. Budgeting more and spending less is a major part of that.
Making a budget is simple. Open up a spreadsheet and record all your monthly income, then subtract all your monthly expenses. For the numbers that aren’t fixed, do you best to estimate, or better yet, go back and check your bank statement from the past month to get accurate numbers. By the end of the process, you’ll have a good idea of how much extra money you have each month if you don’t spend it on unnecessary things such as going out to eat or buying clothes.
The hard part comes next. You need to be able to hold yourself to this budget as much as you can. No excuses, no cheat days: a budget is not good unless you follow it.
That goes double for spending on your credit cards. If you’re trying to get out of debt, then it is massively counterproductive to try to cheat your budget by spending on credit. All you’re doing is digging a deeper hole for yourself.
It’s natural, of course, to make mistakes. Sometimes, you’ll face unexpected expenses. Sometimes, you’ll splurge. The most important thing is to stick to your budget despite these drawbacks and keep on trucking toward a debt-free life.
6. Negotiate Your Bills and Interest Rates
You have a lot more power than you think when it comes to your bills and interest rates. Unbelievably, if you want to lower your monthly payments, all you have to do most of the time is ask.
The next time you have half an hour to kill, pick up the phone and call one of your credit card companies. Be polite, but tell the rep on the other end that you’re trying to pay down your cards and that you’d like to lower your interest rate.
If the rep seems incredulous, try playing hardball. Say that there are other cards offering you rates as much as 50 percent lower and that, while you’d rather not switch companies, you can’t pass that kind of offer up. Be nice, but be firm.
This phone call might take 5 minutes or less, but you could hang up with your interest rate cut in half.
You can negotiate many of your major bills in much the same way. You can often lower your cable and Internet bills if you threaten to switch providers. Car insurance providers are often able to slash rates for customers, and if they can’t, it’s easy to get a quote online from their competitors to see what you could save. You can even negotiate your rent if you’ve been a good tenant.
Are you feeling weird about asking for these kinds of breaks? Don’t. After all, what’s the worst that could happen? They say no and you’re back to square one.
7. Sell Off What You Don’t Need
The garage sale is a great American tradition for a reason. We have a tendency to accumulate possessions that we don’t really need over time. These items sit in our garages and our attics, unused and forgotten, gathering dust. By selling off some of these possessions, you could make a quick buck to put toward paying down your debts.
Of course, there are more outlets than garage sales for selling off your unwanted possessions. Online marketplaces such as eBay and Craigslist can be great for offloading everything from clothing to furniture to musical instruments, as long as you’re careful and capable of negotiating a good deal.
Once you get the money, make sure that you spend it on paying down your debts. Money gained from selling unwanted stuff can feel a little “easy come, easy go,” but that doesn’t mean you should let yourself spend it irresponsibly.
8. Use Your Windfalls Wisely
Maybe you get a holiday bonus at work, or an annual raise. Maybe you get a healthy tax refund every year. This kind of extra money can almost feel like it comes from nowhere, but that’s no reason to spend it irresponsibly.
If you suddenly end up with a nice chunk of change, put it toward paying down your debts, or just save it. If you get a raise, don’t change your lifestyle; bank that money instead. Resist the temptation to “treat yourself” and invest in your future.
9. Resist Temptation
Paying off your debt is a long-term process, and it’s not easy. You’ll routinely have to deny yourself simple pleasures and luxuries in order to save a few dollars. Meanwhile, it will seem like everyone around you is living their life freely, having a blast, and leaving you behind.
Resisting the temptation to give up and spend is crucial if you’re going to get out of debt fast. Choosing to buckle down instead of acting up is the difference between people who get out of debt eventually and those who cycle through periods of debt forever.
Are you afraid you won’t be able to hack it? Find a friend who can support you. Give that friend your credit cards to hold onto and keep him or her on speed dial. The next time you want to spend irresponsibly, you’ll have to call that friend and clear the spending with him or her. Building that kind of “cool off” period into any extra spending can prevent you from making costly mistakes on the road to debt freedom.
10. Consider Debt Consolidation
If you really find that you don’t have the income to make meaningful strides toward paying down your debt, you still have options. Debt consolidation helps people to minimize their debts, bring down their monthly payments, and get out of debt faster. If you’re curious about debt consolidation, give National Debt Relief a call today; we might be able to help, just as we’ve helped so many other people before.