“Master Your Finances: A Comprehensive Guide to Debt Repayment”

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How to Get Out of Debt Fast

Carrying high-interest debt can be overwhelming, especially when money is tight. Large, interest-bearing balances can feel difficult to get ahead of. Fortunately, while the road to getting out of debt can be long, there are strategies and resources to bring paying off your debt into reach. Here are nine steps you can take to get out of debt.

Add Up All Your Debt

Before you decide on a strategy for paying off debt, take inventory of everything you owe. List all your debts, including those you want to pay off now, such as high-interest credit cards, and those you plan to continue to make minimum payments on, such as your student loans, auto loan, or mortgage.

Here’s how to start:

• Write down all your debts. Note any debts you owe, including credit card balances, personal loans, auto loans, student debt, your mortgage, and more. If you aren’t sure exactly what you owe, check your credit report for free to see your debt accounts, including any in collections. Keep in mind that since lenders only report account balances to the credit bureaus once a month, checking your balances online will give you the most up-to-date information.
• Record payment information. Next to each debt, write down the interest rate, minimum monthly payment, and due date.
• Calculate your total minimum monthly payment. Add up the minimum payments of all your debts to find the bare minimum amount you need to pay every month to stay current on your debt. Try to make all your minimum payments on time, as late fees could add to your balance and slow your progress.

Adjust Your Budget

A budget can help you pinpoint places where you might be able to cut back. That puts you in a better position to pay down your debt more aggressively. Here’s how to assess how much you can afford to pay each month, plus find extra money to put toward your debt:

• Calculate your monthly expenses. Using a spreadsheet or a budgeting app, calculate how much you spend on basic expenses each month, such as groceries, your cellphone bill, utilities, gas, rent or mortgage payments, and so on. For expenses that vary, such as your monthly electricity payment, take the average over several months.
• Compare your expenses to your income. Add up your monthly net income—that’s what you take home after taxes. Subtract your total expenses from your monthly income, including necessary expenses noted above and discretionary expenses, such as entertainment and other nonessential expenses. If the amount you have left over isn’t enough to help pay down your debt, you’ll need to take action to improve your cash flow, by cutting expenses or increasing your income.
• Look for opportunities to save. Review all your expenses and consider ways to spend less. For example, consider cutting back on dining out and retail purchases or negotiating your utilities and other services.

Use a Debt Repayment Strategy

A debt repayment strategy can help you decide which non-mortgage debts to prioritize first, get out of debt faster, and save on interest. Here are two strategies to consider:

Debt Snowball Method

With the debt snowball method, you prioritize your debts in order of smallest balance to largest balance. You’ll continue to make minimum payments on all your debts, but you’ll apply any spare funds to your smallest balance. Once that’s paid off, you’ll take any extra money you were paying on that balance and pay it to the next-smallest balance, and so on until all your balances are paid.

The benefit of this method is that you’ll pay off your smallest balances more quickly, which can be motivating and act as a springboard toward paying off more of your debts.

Debt Avalanche Method

The debt avalanche method has you pay off your debts in priority of highest to lowest interest rate. This method will save the most money on interest in the long run.

To use this method, make the minimum payments on all of your debts. Then, funnel any extra money you have toward paying off your highest-interest debt. Once your highest-interest debt is paid off, move on to the debt with the next highest rate and repeat the process until all debts are paid.

Look for Additional Income

On top of cutting back spending to put more toward paying down debt, finding ways to increase your cash inflow can help you get out of debt faster. Here are some potential ways to supplement your income or find extra cash to direct toward paying off your debts:

• Find a side hustle, such as caring for children, walking dogs, or driving for a ridesharing app.
• Freelance to make money with the skills you already have.
• Sell things online, such as possessions you no longer want.
• Ask for a raise at work when the timing is right.

You can also direct any extra funds that come your way, such as your tax refund or work bonus, toward making additional payments on your debt.

Consider Credit Counseling

Talking to a nonprofit credit counselor can help you learn more about your options for repaying your debts. Many credit counselors offer their services on a sliding scale and typically provide a free initial consultation to review your options before you decide to proceed.

In some cases, your credit counselor may suggest a debt management plan, which is designed to help you manage repayment if you are deep in debt, particularly with credit cards. A credit counselor negotiates with your creditors to see if they’ll accept reduced interest rates or monthly payments, or waive fees. You’ll pay the credit counseling agency once per month, and the organization makes payments toward your creditors on your behalf.

Consider Consolidating Your Debt

Debt consolidation can be a good strategy if you have good credit and are feeling overwhelmed by the number of debt payments you have to make each month. Debt consolidation typically works best for paying off credit cards and personal loans.

A word of caution: Don’t use a personal loan to consolidate your credit card debt if you think you may be tempted to rack up new balances on your credit cards. If that happens, you could end up deeper in debt.

Use a Balance Transfer Card

If you qualify for a balance transfer credit card and can afford to pay off your debt in the next year or so, transferring your balances could be an option for saving interest while you pay off your debt.

Balance transfer credit cards offer an introductory 0% APR promotional period—typically a year or more. Once the introductory period ends, the interest will jump up to the card’s standard rate and apply to any remaining balance. That’s why balance transfers are best combined with a firm plan to pay off your debt before the 0% APR period ends.

Also, balance transfer cards generally require you to pay a balance transfer fee that’s typically 3% or 5% of the total transfer amount. The fee for transferring a $5,000 balance could cost you $150 to $250, for instance, and is added to your transferred balance.

Apply for a Debt Consolidation Loan

If you have a good credit score, you may be able to use a debt consolidation loan to streamline your monthly debt repayments and lower your interest rate. Simplifying multiple payments into one fixed-interest loan can make paying off your debt easier to tackle.

Don’t Forget About Debt in Collections

If you’ve fallen behind on paying a debt and now it’s in collections, prioritize paying it off. Bringing collection accounts current can help reduce their negative impact on your credit, which is a good reason to put it at the top of your to-do list. Plus, reducing calls from debt collectors can help relieve some of your financial stress.

Stay Accountable

Getting out of debt is challenging. Small, achievable goals can help you stay motivated and on track. For example, you might aim to pay an extra $50 towards your debt per paycheck. You can also set milestone goals, such as paying off your debt with the smallest balance in three months. As you make progress toward paying off your debts, find ways to reward your progress and take pride in how far you’ve come.

The Bottom Line

Paying off high-interest debt is a big step toward improving your complete financial picture long term. When you reduce or eliminate what you owe, you free up funds that would have gone to making principal or interest payments. You can put that money toward achieving your other financial goals, such as saving for retirement or buying a home.

Beyond improving your cash flow and financial health, getting out of debt can also help you qualify for better credit offers down the line. For example, paying down debt could lower your debt-to-income ratio, which may also help you qualify for a lower-rate auto loan or mortgage.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you achieve your financial goals!

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