In 2016, the average household with debt amassed an average of over $16,000 in credit card debt, nearly $30,000 in car loans, and had an average student loan debt of almost $50,000, according to NerdWallet.
Needless to say, debt proves to be a huge burden on many people across the country. For those who are faced with gargantuan amounts of debt, it can seem easier to turn a blind eye rather than confront it head on.
Fortunately, with commitment, hard work, and focus, it is possible to get out of debt entirely. Here are 12 tips for paying off debt faster.
1) Create a Plan
Without a detailed plan, paying off debt can feel like you’re throwing money away without making any real progress.
List your debts in order of highest interest rate to lowest interest rate, and then biggest debt to smallest debt. This will help to prioritize which debts to pay off first.
2) Reevaluate Your Budget
If you don’t currently have a budget, there are multiple ways to set one up that will best fit you and your lifestyle. If you already have a budget, now is the time to revise it and look for ways to cut back.
3) Pay More Than the Minimum
If you are faced with debt, especially credit card debt, with an average 15% APR, paying only the minimum monthly payment will not create much of a dent. In fact, if you paid only the minimum, it can take you years to pay off debt.
It might seem obvious, but the best way to ensure debt is paid off faster is to pay more than the minimum. You can enforce every other tip, but unfortunately if you aren’t paying more than the minimum, you won’t see much progress.
4) Keep an Emergency Fund
Many people rely on credit cards in case of emergency, which is unwise. If you are in the process of paying down debt and have an emergency come up, putting it all on credit cards will just get you back to where you started. All of your hard work will have been for nothing.
Prioritize building a small emergency fund if you don’t already have one. This acts as a cushion to protect your financial plan. Emergencies and unexpected expenses will happen, so it’s best to be prepared.
5) Make More Money
One of the best ways to pay off debt quickly is to make more money.
I started blogging and freelance writing to earn money to pay off debt faster. Every cent I make goes towards my student loans. I pay about 3x the minimum payment every month, which would not be possible without earning more money.
6) Set Up Automatic Payments
Automatic payments are great because they work better for both you and for your lender.
Collectors want to make sure they are paid back, so they often offer incentive if you sign up for automatic payments. For federal student loans, they offer a .25% interest deduction if you sign up for automatic payments. That might not seem like a lot, but it really saves you money in the long-run.
Further, setting up automatic payments ensure that you will never miss a payment, or pay less than you should.
7) Negotiate a Lower Interest Rate
While not every lender is open to negotiation, it never hurts to try, especially with credit card companies. If you feel like it’s impossible to make any progress due to high credit card interest rates, it doesn’t hurt to call to ask for a lower interest rate.
The worst thing that could happen is they say no. And if they say yes, it can save you hundreds of dollars, if not more.
8) Transfer Your Balance
If you are ready to get serious about paying off debt, a balance transfer could be an option for you.
To do a balance transfer, you put the balance of your credit card onto a new credit card that offers 0% interest for an introductory period, which is often a year.
When done effectively, balance transfers will allow you to pay off all your debt without having to pay any money in interest. But keep in mind, this method will only work if you are serious and committed to paying off your debt. Otherwise, you will only end up with more debt than you started with. But for someone who is truly ready to be debt-free, a balance transfer can be gold.
Many credit cards allow you to do a balance transfer, such as . You can learn more about transferring balances here.
9) Consider Refinancing Your Student Loans
If you feel overwhelmed by the amount and number of providers of your student loans, refinancing can be an excellent option. Refinancing student loans with a private lender can substantially lower your debt interest rates.
Sites like Sofi, a student loan refinancing services, offers fixed interest rates starting as low as 3.375% APR and variable rates as low as 2.185% APR. While refinancing won’t result in lower interest rates for everyone, it is free to calculate on Sofi to see if it could be a reasonable option for you.
10) Make Multiple Debt Payments a Month
One simple trick to pay off debt faster is to split your monthly debt payment into bi-weekly payments. Even if you pay nothing extra above the minimum, this easy step will save you on interest.
If you pay back your loans once a month, you make 12 payments a year. If you split that amount into two debt payments a month, you will make 24 payments a year. But if you pay them back bi-weekly, you will make 26 payments a year. And just like that, without even realizing, you just made two substantial debt payments.
11) Stop Using Debt
Continually using and taking on more debt will greatly diminish your chances of ever being debt-free.
We all know that person who opens a new credit card after maxing out their other, and the person who goes back to school before ever trying to pay back student loans. Credit cards and education aren’t bad in themselves, but they are expensive if not used wisely.
Before you jump into more debt, consider how you can pay down your current debt. For example, if you are looking into buying a house, or want to go back to school, use that as your motivation to pay off your current debt faster so you can start saving for those things.
12) Stay Motivated
In everyone’s get-out-of-debt story, there was a time (or many times) they wanted to quit. Prepare for this by coming up with ways to stay motivated before you get to that point.
For me, I write down my debt totals and keep it in my wallet. I see this every time I go to make a purchase, and it helps me to consider if that purchase is really worth it.
Accountability is also vital for success. By telling a friend or family member about your financial goals, you’ll have someone encouraging to turn to when times get tough.
Have you been through the debt repayment process? What method worked best for you to pay off debt quickly? If you have never had to pay off debt, how do you think you could apply these points to the rest of your finances?