The Crazy-Easy Guide To Pay Off Debt Fast
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How to pay off debt fast? Paying off debt is one of the best feelings in the world. It can be done with a little planning and knowledge on how much you owe and what your monthly budget looks like. This guide will show you exactly how to go about it, step-by-step!
Being buried under a mountain of debt is not ideal for anyone and it can seem incredibly overwhelming to think about becoming debt-free. Learning how to pay off debt fast isn’t for the faint of heart and it will take some hard work and a few sacrifices on your part. Let’s not get discouraged before we begin, though. It can be done quickly if you’re willing to put in the effort, and it’s possible even if it might seem like too much at times.
How To Pay Off Debt FAST
The first step to paying off debt fast is getting a handle on what you owe and how much it’s costing.
Know what you owe
If you’re unsure how much debt you have, you will never be able to confidently say you’ve paid it all off. That being said, the first step is to get one big number. This number will be your long-term, lump-sum payoff goal.
You can get a free copy of your credit report from annualcreditreport.com to help you with this first step. Once a year they allow you to request your credit report from all three agencies. If you’re wanting to be sure all your debt is included, you will want to request from all three before you start working to pay off the debt.
Most people have more than one type of debt, so be sure to list them all separately.
Let’s do the math:
Add up the total amount owed for each line item then take note of the interest rate associated with that specific item.
Next, divide the total amount owed by your monthly interest rate.
This will show you how many months it would take to pay off that debt if you only paid the minimum each month.
for example: $5,000 at 18% APR = 5,000/18=333 so 333 months=$26,220 in interest charges!!
Now we know it would take 333 months to pay off this debt if we only paid the minimum each month.
So let’s say you want it gone sooner, what now?
Well first, see how much more money you can put towards paying that line item off every month.
Then divide your monthly payment by 12 and multiply it by the number of months you’ll pay it off in.
For example: $5000 at 18% APR = 5000/18=333 so 333 months=$26220 in interest charges
So if we want to have this debt paid off sooner than the full 333,000 we would divide our monthly payment by 12 and multiply that number by the number of months we want to pay it off in.
For example: $5000 at 18% APR = 5000/18=333 so 333 months=$26220 in interest charges
$200 monthly payment divided by 12 and multiplied by 15, when you add the two together equals a total of $3300. This means that if our goal is to have this debt paid off within 15 months, then each month’s minimum financial obligation would be $200 instead of the original amount of $150 per month for those first 15-month intervals.
Don’t forget about credit cards!
One thing to remember with credit cards or loans where there are variable rates….in order to find out what your new minimum cash requirement will be on any given line item, contact them and ask!
You’ll be surprised how much you can save by changing just one or two monthly payment amounts. Plus, with the money you’re saving on interest charges, more and now extra leftover to put towards savings!
Many consumers make the mistake of not setting a goal date when they begin the journey of debt repayment. While that may be fine for a few people, the majority of us need a solid goal date as motivation.
Before you begin, look at how much debt you have total. If you owe $10,000, set a goal of paying off $1,000 first. Of course, you will want to pay the entire $10,000 off as quickly as possible, because interest rates are terrible! That high of a goal can get overwhelming quickly.
Breaking your goals down into more manageable steps will help you create the “snowball” effect that is so popular when paying off debt. If $1,000 is still too much to reach for at once, start with $100. Any amount is fine. Don’t compare yourself to others. The only person you’re competing with here is yourself!
Setting a debt-free goal date includes basic budgeting. How much can you truly afford to put towards your debts each week? Giving yourself a deadline creates a sense of urgency, use that as motivation to stay on track!
After you set your mini-goal, set a goal date. If your goal is $100 and you know you have an extra $50 a week you can save, set your goal date about 2 weeks out. You want your goal date to be realistic but also to push you. Without deadlines, there’s way too much room for slacking.
Reduce all possible expenses
The best way to pay off debt fast is through a combination of budgeting responsibly, living within your means as best as possible, and developing disciplined spending habits that involve making necessary purchases (like groceries), but avoiding unnecessary ones (gifts). You may also need to make some sacrifices like cutting back on eating out or entertainment so it’s important not always sacrifice every last bit in order for there to be something left over at the end of each month.
To prepare you for your journey to becoming debt-free, begin reducing as many of your expenses as possible. This is especially important if you don’t have a bunch of excess income to redirect towards your debt each month. This is where sacrifices and strict budgeting come into play.
Make your morning coffee at home, try to reduce how often you spend out on fast food, and call to see if your bills for things like the internet, cable, car insurance, etc. can be lowered.
This phase – especially cutting out extra shopping and fast food – may be difficult at first. The longer you stick with it, the easier it gets.
Reach out to creditors to Pay Off Debt
It is not common knowledge that some creditors will actually negotiate the total amount of your debt with you, but they do it all the time. Use this secret to your advantage! These negotiations can often result in you owing much less than you started with.
The only way to see if a creditor is willing to negotiate is to contact them. However, keep in mind that reaching out to them will give them your phone number. Cue the collection calls!
Use the Snowball Method
The Snowball Method of repaying debt was popularized by financial guru Dave Ramsey and, even if you’re not a fan of his personally, this method is still one of the best ways to pay off debt.
The process works pretty simply. You begin paying off debt by paying the smallest debt owed with the smallest monthly payment. Once it is fully paid, you then move onto the next smallest, making sure to roll the previous monthly payment into the new one. Over time, you will be paying off debts with high monthly payments and not suffering too much because of it, due to the rolling over of previous payments.
Some people prefer the Avalanche Method where you are making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate.
Pay every spare penny
When you’re trying to pay off debt fast, you can’t be stingy with the money you use to pay your total debt down. In other words, every penny of extra money you have should go toward your debt repayment campaign until you are totally debt-free. If you’re not throwing extra money at it, it will take far longer than you really want to pay your debt all the way down.
One sneaky, painless way to use every penny is to set your bank to round up all of your purchases to the next dollar. This means if you purchase groceries and the total was $103.45, you will have $.55 rounded up and put into another savings or checking account. Then, use the funds from that account to pay extra on your debts.
Track your Pay Off Debt progress
It may sound like common sense, but this is still worth mentioning. Keeping a debt payment tracker on hand can be a very big motivator for when you get burned out and tired of the work involved. It can really help you keep pushing when you feel like giving up to see how far you’ve come.
Your debt tracker can be as extensive or as simple as you want it to be. For some, planners with graphs and boards work well. For others, a simple blank thermometer on the wall is the best option. Whatever you choose, make sure you keep it in a place that you’ll see it often to keep that motivation rolling. Remember along the way that every payment you make is one step closer to being completely debt-free!
Understand the journey
Make no mistake about it, you will absolutely get discouraged at least once as you’re working toward paying off your debt. Especially if you’re trying to pay off debt fast as opposed to taking your time, frustrations can grow when it doesn’t happen as quickly as you’d like.
Paying off debt can be tedious, time-consuming, and at times even heartbreaking. You will find yourself jealous of friends who are “living the life” because they’re not worried about their debt. You may even find yourself wanting to quit or simply angry at the fact that you’re in debt in the first place. In the end, if you do find yourself feeling any of those negative emotions, understand that it is one-hundred percent normal and you’ll get past it! It’s all part of the journey.
In the long run, you’ll be so glad that you pushed yourself in order to become debt-free.