According to Experian the average American carries $6,354 in credit card debt and more than $24,700 in other debts such as car loans. The average student loan is as high as $34,144.
In another research study (Pew Research Study), more than half of Americans spend more than they earn each month. They use credit cards to bridge the gap.
So, you can imagine how many people are struggling with debt.
Some bury their heads in the sand and the reality of owing so much money is too much to face- they simply choose to avoid.
However, we all share a deep longing for financial security and a life of our dreams. But, we also share the fears that so often sabotage those longings – the fear of unexpected disaster such as illnesses, home repair when our debts are paralyzing.
Eventually, our dreams are just that- dreams.
We need to get to a point where we get sick of living from paycheck to paycheck and decide to want to live a better life. You shouldn’t have to wait to confront a disaster.
Let’s not sugarcoat it. Debt sucks and makes it impossible for you to invest.
Debt is the most common roadblock keeping us from living our dream life- preventing us from being able to enjoy life and the money we have.
That’s why it’s essential for you to learn how to get out of debt fast so you can focus on earning and investing instead of worrying about debt.
How to Get Out of Debt Faster
Unfortunately, getting out of debt can be wrought with hard work and heartache. No matter what kind of debt you’re in, paying it off can take years — or even decades — to get out of debt.
Fortunately, some strategies exist that can make paying off debt faster — and a whole lot less painful. If you’re ready to get out of debt and save money for investing, consider these tried-and-true methods.
They will help you get rid of paralyzing debts and conquer your wildest dreams all while leaving you with more money to invest.
Now, let’s break this down and see how you can apply these hacks to your debt.
The horrendous credit card debt trap
Credit cards are designed for convenience. It’s simple to pull out your credit card and pay for a dinner out, the new purse that you have been eyeing or the video game that you have been dying to own. It is easy to make a charge here and there, and before you realize it you owe hundreds of dollars on your credit card.
If you have a credit card debt, you’re not alone.
According to Fortune.com, the average American household has $8,284 in credit card debt.
Here’s how you can pay it off fast and enjoy the financial freedom sooner.
1.Divide your credit card balance into manageable chunks.
A huge credit card balance can be intimidating to imagine. So, don’t. Instead, break up the balance into smaller chunks if you have one huge credit card debt. If you have several cards, then begin by paying off the smaller debts.
This way, the repayment process becomes more manageable in smaller amounts.
Owing $15,000 in credit card debt is daunting to imagine. Instead, think about owing three different chunks of $5,000 each.
You might be thinking – “but it doesn’t change the math of what I owe.
Well. I get it.
While it doesn’t, dividing and conquering can be an easier approach to make headway. The small wins will boost your confidence.
2. Pay off the credit card with the highest interest rate.
A credit card with a high-interest rate means you’re paying the most amount in interest compared to the principal balance.
Focus on reducing the principal balance to limit the interest that accrues.
Once you have paid it off, move onto one with the next highest interest rate (and so on).
3. Move onto the credit card with the smallest balance.
While this strategy disregards the interest rate aspect, it can boost your confidence with smaller wins.
Let’s say you have $12,000 of credit card debt comprised of $9000 on one card and $3000 on another. Focus on paying off the $3000 balance fast. Then, move on to the next lowest balance and so on.
The small psychological wins are worth your peace of mind.
4. Consolidate your credit card debt
You can consolidate your credit card debt into an unsecured personal loan repayable in 3-7 years. The interest rate will be lower than your current credit card interest rate.
Suppose you have a credit card debt of $10,000 at a 15% interest rate. If you consolidate this with a personal loan at 7% interest rate repayable in 3 years, you’ll save $2,634 and pay off your credit card debt earlier.
A personal loan is an excellent strategy to save on interest costs.
Always remember to make at least the minimum payment on all your credit cards to avoid additional penalties and fees.
The student loan burden
The value of education can’t be quantified. Perhaps it’s priceless. But, paying it off isn’t fun.
You get the worst feeling when you have to take a big chunk of your hard earned cash to pay off your student loan. It seems like this feeling might last forever- but it doesn’t have to.
If you’re going to repay it faster, you must have a strategy.
Make a 3-5 year plan to give you a sense of the scope of when you’re paying off your student loan. It’s far easier to commit to eliminating your student loan when you have an end date in mind.
What’s the smartest way to pay off your student loans?
Once you get your timelines right, here are some of the best strategies to slay your student loans for good.
5. Refinance your student loan
Refinancing allows you to combine your government and private student loans into a new single loan with a lower interest rate. You can choose a fixed or variable interest rate, with a loan term ranging from 5-20 years.
6. Consolidate your student loans.
Unlike student loan refinancing, federal student loan consolidation does not lower your interest rate or monthly payment. Instead, it helps you organize your federal loans into a single student loan with a single monthly payment.
7. Increase your monthly loan repayment.
The strategy sounds expensive and impractical. However, it’s one of the best approaches to pay off your loan faster. You can also save a significant amount in interest over long-term, then make a one-time, lump sum additional payment.
Make sure to instruct your student loan servicer in writing how they should apply any extra payments to the current monthly payment (not a future monthly payment).
The money-draining mortgage
According to the Urban Institute, more than 26.9 million Americans own their home outright. Some bought their homes with cash, while others whittled away at their mortgages year after year until they were gone.
Maybe you worked with a great real estate agent and got a deal on your home, but—like two-thirds of American homeowners—you had to take out a mortgage to finance the purchase.
You can join the ranks of debt-free homeowners and make your last mortgage payment sooner rather than later.
When you pay early, you save money on interest, own your home, and redirect the extra cash to other investments. Investments include; retirement, college education for your kids, or any emergencies.
So how do you pay off your mortgage early?
8. Refinance to a shorter-term loan
You can refinance a 30-year mortgage to 10-15 year loan. Your monthly repayments may be more significant but you reduce your repayment period by half.
Shorter-term loans have lower interest rates than long-term loans.
9. Pay more every month
Divide your monthly instalments (principal+ interest)- by 12 then add it to your monthly payments for a year. At the end of the year, you’ll have paid 13 payments in 12 months. However, call your mortgage provider to discuss your extra payment and how you like it applied. Always check your statement to ensure your financier implemented your request.
10. Make extra annual payment
Instead of making additional monthly payments, you may choose to save 1/12 of the monthly payment, then make a lump sum payment every year.
Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5%. That would save more than $27,000 interest, and you would pay off the mortgage 4 years and 3 months earlier.
11. Use extra money toward your mortgage.
Channel all your windfalls such as a bonus at work, inheritance, tax refund, money from your side hustle, a salary increase, etc. towards your mortgage.
Let’s use our 30-year fixed-rate mortgage for $200,000 at 4.5% example. After five years, you pay an extra $10,000 in a lump sum. The lump sum will pay off the mortgage 2 years and 4 months earlier and saves more than $19,000 in interest.
However, its downside is that it’s hard to predict the mortgage payoff date. Therefore, be mindful of putting so much extra cash toward the mortgage. It may be worth it to save for an emergency or paying off credit cards.
Wipe out your debt — and save money for investing
No matter what type of debt you’re in — whether it is credit card debt, student loan debt, mortgage, car loans, or something else — it’s important to know there is a way out. It may not happen overnight, but a debt-free future could be yours if you create a plan — and stick with it long enough.
No matter what that plan is, any one of these strategies can help you get out of debt faster. And the faster you become debt-free, the quicker you can start investing and living the life you truly want.
However, all that you’ve read is worth nothing unless you take action.
What are some strategies you have used to pay down debt quickly? Have you ever tried anything on this list?