Debt: It’s something we don’t even like to think about, but we should! The faster we get out of debt, the less debt ends up costing us, this way we are more prepared to face unforeseen emergencies that would otherwise be financially devastating.
Getting into debt is easy and often unavoidable. Sooner or later, everyone buys a home or a car, and if we hope to improve ourselves, we end up with college loan debt before we even start our careers. And somehow we get caught in the so-called “debt trap”, thinking how to escape it. But with the help of debt reduction strategies, we can!
#1 Pay more than the required installment
It’s logical! Compound interest works against us when we have debt, but it can work in our favor when we pay debt down faster than our creditors expect us to. We not only save on the overall amount paid to our credit, but we can also finish our payment months, or even years earlier than we otherwise would have.
There’s just one hint: check whether there are any early payment penalties before deciding to increase your payments. If there are, compare the penalties to the benefits of early payment and choose what’s best for you.
#2 List and prioritize
There are various approaches to planning your debt payment priorities. Some suggest the “debt snowball” effect. In this strategy, you pay your smallest debts off first, adding the sum that would have ordinarily gone into installments for those debts into increasingly large debts. Although it’s better than not having a debt payment strategy, it’s not the most economical method.
To get the most profit out of your debt escape plan, you should ideally check the interest you are paying on your debt and prioritize the most expensive debts. Nine times out of ten, this will be your credit card debt. Dollar for dollar, you’ll be realizing greater savings when you pay off high APR loans first. This is called the “stack method.”
#3 Make money in your spare time
Before you begin making extra money, commit to using all or most of it towards becoming debt-free. Although it might be hard to stick to your resolution when you find yourself with extra cash, stick to it!
Think about services you can offer locally, or hit freelance work platforms to see what’s available. You don’t have to make all that much money to make a big difference to your debt over time. Remember, every little bit counts and compounds.
#4 Cut your budget right down to basics
We often don’t realize just how much we spend on things we don’t really need to survive. Tracking your spending can be quite a revelation!
Things like cable TV, fast food, dining out, soft drinks, alcohol, gadgetry and entertainment add up to a significant amount of money. If you’ve got a large credit card debt that just keeps growing, you may be living beyond your means as a matter of routine.
By budgeting and cutting unnecessary spending, you’ll prevent your debt situation from getting even worse. Any extra savings go towards ending debt.
Although cutting out luxuries might seem quite brutal, you’ll actually end up enjoying them more when they really are occasional treats instead of habits. Once you have determined what you’ll be cutting out, decide which debts you’ll service with the extra money.
#5 Sell items you no longer want or use
Challenge everyone in your family to do a thorough clean-out of items they don’t use. As a rule of thumb, if you haven’t used it in the last year, you probably won’t use it and don’t need it.
Now set up a garage sale, or advertise the items for sale on sites like eBay and Craigslist. Guess where the proceeds go?
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#6 Look out for seasonal employment
If you’re a student or are unemployed, keep your eyes open for seasonal jobs. Even those with full-time jobs may be able to find weekend work during the holiday, harvest or planting seasons. Again, most of the money you earn goes into your debt repayment tactic. Your hard work will pay off in the long run.
#7 Get the best possible interest rates
If you’re a reliable payer, there’s nothing to stop you from asking for a lower interest rate on your debts. You might even get it!
Part of the reason for that is that some people will take out a lower interest rate loan and pay off all their higher interest debts. Your creditors know that, and if you’re a good credit risk, they’ll want to keep your business. This leads us to another strategy that you can use to bring down your debt and get it paid off faster.
For example, some credit offerings come with a year or more at 0% APR. If you can use this grace period to make a substantial dent in the overall amount you owe, you’ll have a great head start.
#8 Use any windfalls to reduce your debt
When we get a surprising amount of cash: a bonus, raise, gift or tax refund, our first impulse is to splurge. But you could turn that extra amount into even more money through saving on interest. Allocate all or most of it to your attack on debt.
#9 Avoid temptation
How often do you buy unplanned items? Where does the temptation come from? Know which stores are “danger areas” and stay away from them!
Frequent shopping also places us in temptation’s way, so always shop with a list, and try to stock up on everything you need for a few weeks at a time.
Other ways to beat temptation include leaving your credit card at home when you shop and only carrying as much cash as you plan to spend.
#10 Make it fun!
You can turn anything into a game. Set targets, track progress and see if you can exceed your goals. Involve your family, and explain what you are doing to your kids. Chances are, they’ll be eager to help. Of course, winning is also fun, so set up a “prize” treat that everyone works towards. Paying off debt can take a long time, and you’ll want to enjoy some reward much sooner.
#11 Stay positive
Budget-breaking incidents affect us all. Perhaps your car needed expensive repairs, or you had to replace a broken appliance you need. Don’t despair! Keep up your positive habits and revise your expectations.
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