Unpaid debts can cause unnecessary stress. Instead of being able to enjoy the full potential of the money you earn, you’re stuck chipping away at a debt that seems to have no end.
Regardless of the size of your debt, owing money is something you should try to avoid altogether, and there are many ways to help you do just that. If you are struggling with debt and find it to be an uphill battle, let us provide you with a few quick tips to get out or significantly pay down your debt.
If you’re ready to tackle your debt but aren’t quite sure where to start, just know that there isn’t only one solution. Rather, there are several ways to help manage your money and channel more of it towards eliminating your debt. Using as many of these debt reduction strategies as you can help you reduce your debt faster.
Here are 10 ways to help you get out of your debt as quickly as possible:
Pay more than the minimum
This can be considered one of the most prominent strategies, but one that many people tend to overlook. When you are working on removing your debt, you will be provided with a payment plan which highlights the minimum payment amount required, usually monthly.
The minimum payment will allow you to pay off your debt, but you’ll be stuck making these payments for a very long time. Try to direct as much spare money towards the debt and aim to pay more than the minimum payment, as much as you can afford.
Every little bit that you can put aside for your debt can be helpful, and over time, you will find that your principal amount has been sharply reduced.
Spend less, save more
Again, this strategy may seem obvious, but it can be difficult to do. Cutting costs may appear like an unpleasant task, but it can be done. It can be an eye-opener when you learn to manage without the purchases you chose not to make.
In many situations, debt is the result of buying things that you want without the money to afford them. In these situations, it’s important to separate your needs from your wants and understand that you may not always be able to buy everything.
The first thing to keep in mind is that the credit available to you through credit cards are simply loans and cannot be considered yours to spend. When you are considering making a purchase, ask yourself whether you would be able to pay for this item upfront and in full. If the answer is no, you should leave it until you can and always try to make payments using cash rather than credit. Also, is this a want or a need?
The money that you save by avoiding unnecessary purchases can be put towards paying off your debt. Over time, you will find that these new and healthy financial habits will help improve your future finances.
Don’t buy a new car
The unfortunate truth about cars is that they depreciate at a rate that results in a significant loss of money. If you choose to buy a new car for even $20,000, you will lose more than half of its value within the first few years of purchasing.
It’s impossible to maintain the value of a new car. The moment you drive it off the lot, it will lose at least 15% of its value, and more as time goes on. Purchase a good-quality used car instead of a new one. You will be able to save a significant amount of money, which can be funnelled towards paying off your debt. Ask yourself if a car is a necessity or if transit is an alternative.
One car and no more
Whether you’ve purchased a used car or a new one that you plan to hold on to for the next decade or so, it’s financially beneficial to have a single car for the household. There are many excellent alternatives to driving, including public transit, walking, or carpooling.
A single car can help you save thousands of dollars over the span of a year, by saving money on gas, insurance, and overall maintenance. If you do own more than one car, the money you earn by selling the other vehicles and the money you save from having a single car can be used towards your debt.
Start with the largest interest rate.
There is always that one debt that has a larger interest rate than the others and is costing you more. The best strategy to use in this case is to focus all of your attention and extra money towards paying off the largest interest debt, while also making minimum payments on all of the others.
Setting up an auto-deposit can be a good way to make sure you never miss a payment. Once your largest interest debt is paid off, begin focusing all of your extra money towards paying off the next largest interest debt and continue this pattern until all your debts are paid off.
Work twice as much
Sometimes the money you’re making with a single job is simply not enough to tackle your debt at the speed you may want. It can certainly be stressful and exhausting as you pay off a debt, and in some cases, you may find yourself working harder without being able to keep all the money you are making.
It can be a good idea to get another job on the side and use the money earned from that job to pay off your debt aggressively. This will allow you to make very large monthly payments and bring down your principal amount as fast as possible to minimize the amount of interest that is being added.
A second job doesn’t necessarily have to involve working for someone else, but ways to increase your income. It can be as simple as renting out space in your home or using one of your skills or talents to make some cash on a small scale.
Just remember that your debt and second job are temporary and may be tiring at the moment. However, it will only speed up the process of debt reduction for you so you can enjoy your debt-free future.
Plan your grocery shop
One of the main areas of constant spending is usually groceries; you will need to purchase food. Eating out at restaurants should definitely be limited as much as possible because the costs can add up quickly.
There are also ways to help you save during your grocery trips. Luckily, there are some types of grocery items that can be stored for long periods of time, such as canned goods or frozen goods.
These non-perishable items should be stocked up when they are on sale and used over time. When you buy many groceries on sale and stock up, you may be able to skip one trip to the grocery store every month, and you will find that you can save a lot of money that can be put towards your debt. You can check for sales on items at the grocery store and plan your meals around those items.
Consolidate your loans
Consolidating all of your loans is a good way of organizing yourself and putting all of your loans into only place under a lower interest rate.
Rather than worrying about all the different places you owe money and the various minimum payments that have to be made, putting all your debts under one roof can be the best way to help keep track of how you’re doing. The key is to have your debt at a lower interest rate.
Regardless of whether you consolidate your loan or not, this technique will only be effective if you create a realistic spending plan and stick to it. It’s also important to put aside some savings so you won’t have to use your credit card during emergencies.
Refinance your mortgage
Refinancing your home can allow you, as a homeowner, to reduce your overall monthly mortgage payments and pay less interest over the span of your loan repayment period. Again, this helps to bring the interest rates down on the money you owe.
If you do choose to refinance your home and consolidate your debts into your mortgage, you have to think of your mortgage like a debt consolidation loan. This situation should be no different from any other type of loan. Pay as much as you can!
Also, make sure you get rid of the credit cards and lines of credit you consolidated so you don’t get yourself in trouble again.
You should put money aside as savings and remain within your spending plan. Your home should never be the source of your bill payment money because it will leave you with no assets or savings when you choose to retire.
Keep track of your expenses
Before you can even begin to start paying off any loans, you have to be aware of all the debts you owe, how much they are, the minimum payments, and the interest rates. Creating a spreadsheet with all of this information is step one in the organizational process.
Expenses can get out of hand and bills can start piling up when you aren’t carefully tracking your expenses. If you’re spending more than you are bringing in, you know that trouble is ahead.
Debt or no debt, it’s a good idea to keep track of your expenses and create a budget so money can be allocated to different areas such as groceries and rent. Once you have this spending plan, you have to keep a close track of all your spending and remain within your budget at all times.
If you are working on paying off a debt, you should allocate a specific amount of money to your debt and determine other areas in your life that you can cut back on and direct that extra money to debt repayment.
Chipping away at debt can sometimes be overwhelming, and it can be discouraging if you feel that you don’t see any results. Make sure you feel prepared and have a solid plan about how to tackle your debt.
In some cases, speaking with a credit counsellor or a financial advisor can be the best way to get all your facts and outline a plan that is best suited for your situation. They will be able to help you effectively deal with your debts.
To learn more about how to get out of debt, no matter the size, call Kevin Thatcher & Associates at 1-888-329-5198 or contact us here.