ROANOKE, Va. – As an adult, debt can seem like an unavoidable part of life. It impacts your credit scores and personal finances. If you can only afford the minimum monthly payment, having too much debt can be a slippery slope.
When debt gets out of control – whether it’s from medical bills, student loans, or unexpected emergencies – it can feel like a dragon standing between you and financial freedom.
But you can defeat the debt dragon, one step at a time. This guide will help you learn how to pay off debt faster, even when it seems impossible.
6 Ways to Pay Off Your Debt
Your first step to paying off your debt faster is creating a debt payoff plan. There are three main debt elimination strategies you can use to pay down or pay off debt: the avalanche method, the snowball method and personal debt consolidation loans.
If you only have one debt account, make the largest monthly payment you can until it’s gone.
But if you have multiple accounts to manage, figuring out which debt elimination strategies work best for you is key.
The six debt elimination strategies we’ve outlined below can be used on their own or combined.
The Avalanche Method
With the debt avalanche method, you pay off your debts starting with the highest interest rate and work your way toward the lowest. Let’s break it down:
- Make the minimum monthly payment on all your accounts.
- Put any extra money toward your monthly payment on the account with the highest interest rate.
- Once that debt is gone, apply what you paid toward that debt to the monthly payment for your next highest interest rate account. Keep going with this method until all of your debts are paid off.
The more money you put toward paying off high-interest accounts, the less time it takes to pay them off and the less money you pay in interest. This is how the avalanche method works.
It may take some time to see significant progress, but don’t get discouraged. Once you gain momentum, you’ll start plowing through your debts like an avalanche.
The Snowball Method
With the debt snowball method, you pay off your debts starting with the smallest balance and work your way toward the largest. Let’s break it down:
- Make the minimum monthly payment on all your accounts.
- Put any extra money toward your monthly payment for the account with the smallest balance.
- Once you’ve paid off that debt, apply the amount you paid toward it to the monthly payment of your next smallest debt. Keep going with this method until all of your debts are paid off.
This method may be good for you if you have multiple credit card balances but can’t qualify for a new balance transfer card or a personal loan to consolidate your debt. (More on these methods later.) But it works for any kind of debt you have.
While the snowball method is great for seeing progress quickly, you usually end up paying more than with the avalanche method. By not paying off debt according to interest rates, high-interest accounts could cost you more in interest over time.
Paying Off Credit Card Debt With a Personal Loan
Consider a personal loan if you have a lot of credit card debt but don’t have the money to settle or use toward the debt avalanche method.
Getting a personal loan to consolidate your debt decreases your number of monthly payments and can make managing your debts much easier. Let’s break it down:
- Shop around for different loan providers – online lender, bank or credit union – to find out the interest rates you’ll likely get and the fees involved. Look for a lower rate than what you’re paying now.
- Apply for a debt consolidation loan. Once you’re approved, some lenders pay off your cards on your behalf, but others transfer the money so you can pay them off.
- Pay off your personal loan according to the repayment plan. If you can pay more than the minimum monthly payment, you’ll save money and get out of debt faster.
Consider these tips if you use a personal loan to consolidate your credit card debt:
- Keep your accounts open: Keep your paid off credit card accounts open unless you need to avoid account fees. This is so you don’t negatively impact your credit scores by closing them.
- Cut back on spending: If you’ve paid off your cards with the loan, don’t put a balance back on them. This just creates more debt.
- Be a responsible borrower: Make regular, on-time payments to your personal loan. Not doing so can cause more credit problems.
With credit card debt, you can transfer your credit card balance to another card – ideally, one with a lower interest rate.
Transferring balances from a high interest rate to a lower interest rate credit card cuts down on the interest you pay over time. And because you’re accumulating less interest, it may also help you pay off your debt faster. Let’s break it down:
- Apply for a new credit card with 0% APR on balance transfers for an introductory period (or find a balance transfer offer on a card you already have). If you can’t find this kind of offer or don’t qualify, look for a credit card with a lower interest rate than your current card.
- Once you’re approved, transfer the balances from your other cards to the new card by contacting the new card issuer.
- Pay off your balance on the new card as quickly as you can. If you got a card with a 0% APR offer, try to pay it all off before the 0% APR period ends.
Many cards come with a balance transfer fee, so read the fine print before you apply. However, some credit cards offer 0% APR balance transfers and have no balance transfer fees. Look for these credit card offers if possible.
Debt settlement can be a viable option if you’re behind on payments and can make one-time settlement payments to pay off your accounts. But this isn’t always the best option, as it can affect your credit scores and your ability to get future financing.
For more information How To Get Out of Debt Faster - MoneyTips