Debt is a tough subject to think about, let alone to tackle. It impacts every aspect of your financial life — especially your ability to save for emergencies, for goals and for retirement. Here are some steps to take to pay off debt fast so you can get back to focusing on your future.
Stop Buying on Credit
The first thing you need to do to start getting rid of debt is to stop digging yourself in. Stop using your credit cards and don’t take on additional loans. Getting out of debt may require a significant shift in the way you approach your finances, and it’s easier to make these changes when you’re forced to live within your means.
Figure Out Where Your Money is Going
Track your spending for a full month (at least) so you know where you’re spending. This can help you get a handle on things that have to be paid for (housing, utilities, groceries), what things can be trimmed (dining out, entertainment spending) and where you can cut altogether (subscriptions you don’t use). There are a variety of methods you can use, such as budget worksheets, a notebook or apps. Whatever you choose, the key is to stick with it.
Create Financial Goals
Writing down your goals — like paying off one credit card balance by this time next year — makes you 42% more likely to achieve them. Your goals should be balanced — while it’s important to you to quickly pay off debt, you should also have a savings safety net and continue to save for retirement.
It’s good to have your goals in mind when you start budgeting so you know how aggressive you need to be to meet your goals. You may have to make some alterations based on the realities of your budget but setting your priorities first can help motivate you when faced with tough budgeting decisions.
Make (and Follow) a Budget
Now that you have a better idea of the flow of your money, you can create a budget. A budget is essentially a prioritization of your life — you allocate money based on what is important to you.
Managing debt often begins with finding extra savings in your budget. Start with easy things —cutting where your life won’t be impacted much, such as subscription services you don’t use much or one restaurant meal a month. If you want to pay down debt faster, look for additional changes you can make that can help accelerate your repayment. Start using coupons, shopping at consignment stores and using your local library.
It’s important to balance living and paying off debt — you need to stay motivated and cutting every bit of happiness out of your life now won’t keep you on track in the long-term. Consider cancelling an expensive gym membership but be willing to invest in a cheaper option to ensure you can still live a balanced and healthy life.
You should always put your budget in writing (whether on a physical piece of paper, spreadsheet or in a tracker app). Recording your budget helps you stick to your budget.
Use the Debt Snowball Method
Figure out which of your loans has the highest interest rate and hit it with all the extra money you have to allocate to your debt. By paying the minimums on your other loans and putting any extra money toward the one with the highest interest rate, you’re saving money on interest and paying off debt faster.
Once that debt is paid, pick the debt with the next-highest interest rate and add what you were paying on the first debt to the minimum you’ve been paying on this one. Keep the amount that you are paying toward your debt the same — as you pay off each loan, the amount you can allocate to one debt grows, helping you pay them off faster and faster.
Put Extra Money Toward Debt Payments
When you have a windfall — birthday money, a bonus at a job or a tax return — consider allocating that money to an extra payment on your debt. Though it’s a lot less fun than the new TV or shoes you’ve been eyeing, it will help you pay off your debts faster and put you in a better position in the long-term.
You can also consider taking on additional earning opportunities, such as another job, a side hustle (like babysitting, coding or taking surveys) or selling your un-needed items. Just be sure you put that money toward eliminating your debt quickly — don’t let the additional income distract you from your goals.
Carefully Consider Balance Transfers and Debt Consolidation
If you’re overwhelmed by debt, you might consider a balance transfer or debt consolidation strategy. These can be good tools to address your debt. However, like all powerful tools, you need to know how to use them effectively.
Proceed with caution. Transferring your credit card debt to a card with a 0% introductory rate may help for a while, but if you don’t pay off the entire debt during the introductory period you could be hit with a significant interest bill. Consolidating debt may make you feel better (you just have one debt payment now, not five!) but may make paying it off more difficult.
These strategies cannot be a substitute for changing your approach to money. If you’ve begun paying debt off responsibly and think that this can help accelerate your repayment timeline, research the best way to integrate this into your plan.
Renegotiate if Possible
Lenders prefer that you make payments; if you call them and ask to renegotiate your interest rate or discuss credit card fees, you may be able to get some relief. As long as your payment history is good, they may be willing to work with you to make it easier for you to continue making payments.
You may also be able to get a lower monthly payment on some of your services, such as phone or cable, with a call to your provider. They’d rather keep your business and may be able to offer you a rate decrease so you stay with them.
Don’t be discouraged if this doesn’t work — the actions you’re taking in the previous steps will result in a significant change to your debt situation.
So many people have debt because getting out of debt quickly isn’t easy. It takes commitment and perseverance. Instead of thinking about this venture as restricting yourself, picture your financial goals as something you get to do, not something you must do. By treating it as a challenge, you’re more likely to follow through.
You should also celebrate your victories. Treat yourself (in a budget friendly way!) when you achieve a milestone. Not only will this help keep you positive, but it also allows you to see what life will be like once you’ve reached your goal of being debt-free!
If you’re looking for financial guidance or insurance to meet your budget and your needs, we can help! Whether it’s helping you save money by bundling your home and auto policies or helping you prepare for retirement, a Farm Bureau agent or financial advisor can help set you on a path that will help you protect what matters most in your world.