Paying off any outstanding debt is always a wise idea, whether it be your credit card balance, student loan repayments, or a portion of your mortgage. Not only will it improve your credit score, but you’ll be able to save money for other goals sooner, and you won’t have to deal with incurring interest.
Handling debt may seem overwhelming, but don’t fret. There are various straightforward steps you can take to make progress.
Read on for some strategies you can adopt to help pay off your debt faster and a list of reasons you should do this.
How to pay debt off faster
Below are seven tips and tricks that can help you pay off your debt quickly.
Tip #1: Pay more than the minimum payment. When making monthly repayments or installments, experts recommend paying more than the minimum amount. This will save you from compounding interest fees and help you pay off loans faster.
If you’re able, you may want to consider making multiple payments in a month. Even though you're required to make at least one payment per billing cycle, submitting multiple payments ensures that your credit utilization remains low throughout the month. The potential of missing due dates also decreases.
Payment history accounts for 35 percent of your credit score, making healthy financial behaviors the most significant factor in its determination.
Responsible payment behavior strengthens your credit score, and in addition to helping you pay off your debt fast, it can help you gain approval for future financial endeavors.
This method is the most effective when it comes to settling debts.
Tip #2: Pay off your most expensive loan first.
In most if not all cases, your most expensive loan has the highest interest rate. By prioritizing this loan, your overall debt will decrease dramatically. Once you've done this, move on to the second-most expensive loan, and so on.
This is also known as the debt avalanche method, which can help you achieve debt relief quicker than other strategies.
Tip #3: Stop using your credit cards. These days, it’s practically unheard of not to have a credit card. They’re incredibly convenient to use and easy to carry as a cash alternative. However, they do have downsides.
Unlike with a debit card, where you’re withdrawing from your checking or savings account directly, with a credit card, you’re borrowing money from the credit card issuer to make purchases. This can result in overspending and exceeding your credit limit. If you take a break from using your credit card or stop using it altogether, your balance — and therefore your interest rates — won’t increase. You’ll save yourself from further debt, and your credit score will thank you, too. After all, credit utilization is worth 30 percent in credit score calculations, making it the second most significant factor.
Tip #4: Reduce spending. When it comes to settling debt, every dollar matters. Though it may not be fun, cutting back on unnecessary expenses such as new clothes, television and magazine subscriptions, or eating out can help you save money.
Tip #5: Get a side hustle to increase income. There’s nothing wrong with trying to find extra income to supplement what you’re already earning. This may come in the form of a part-time job or freelancing.
Consider this option, especially if you bring in a lower income.
Tip #6: Look into debt consolidation. Debt consolidation means amalgamating your debts into one. Typically, this is done by taking out another, larger loan, then using that money to pay off each of the smaller loans you’ve just combined.
This can also bring an altered repayment schedule, meaning that you may be allowed to combine your debts into a single monthly payment.
Banks and credit card companies are the bodies that issue debt consolidation loans.
Tip #7: Consider the snowball method of paying off debt. The debt snowball method is the opposite of the avalanche method. Instead of focusing on the most expensive loan, you pay off your smallest debt first, then the second, then the third. This strategy is all about gaining momentum so that by the time you reach your most significant loan, you have the confidence, understanding, and money saved to make an impact.
Why you should pay debt off quickly
As mentioned earlier, paying off debt in a timely fashion positively impacts your credit score.
You’re entitled to a free annual credit report from the three major credit bureaus, Experian, Equifax, and TransUnion. Take advantage of this. If you do not know where your credit stands currently, you cannot take the appropriate measures to repair it.
Although having certain debts can be beneficial since it demonstrates to banks and other lenders that you’re capable of handling various forms of credit, it can be a severe financial burden if it spirals out of control.
Regardless of your preferred strategy, you must develop a debt repayment plan and stick to it. Patience is key; you will be debt-free sooner if you make an effort and stick with it.
Paying off your debts will also help you avoid potential high-interest fees and penalties, falling behind on payments, and having little to no savings in case of emergency or job loss. (An emergency fund is always a good idea.)
Millions of Americans struggle with debt, so it’s nothing to be ashamed of. What matters is actively taking measures to pay it back. You must have a strategy to start paying off your expenses, but it’s just as important for you to equip yourself with the proper tools. There’s no use paying off credit card debt, for example, if your current card’s annual interest rates are unaffordable. You can try asking for lower interest rates, but that’s up to the credit card providers.
An excellent financial tool for you to consider is Point Card.
Designed as a transparent, easy-to-use alternative payment card, Point allows cardmembers to exercise monetary independence and spend their own money while receiving exclusive benefits. This includes unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases.
You work hard for your money, and Point works equally as hard for you in return. In addition to the rewards program, an array of safety measures are extended to all card users to protect their wealth and financial well-being. Car rental and phone insurance, travel insurance, and fraud protection with zero liability are just some measures.
More importantly, Point Card comes with no interest fees and requires no credit checks. You’ll be able to save money for what matters most instead of having to worry about unnecessary, costly payments and how this could influence your future financial goals.
Made to spend.