Piling up debt steeps our standard of living and makes us feel irritable. Pay off debts quickly seem to be an instant solution to end the woes. But is it as easy as it appears?
No, managing your financial wealth is not a cakewalk. Every step requires guidance and thoughtful decision.
However, constant bickering about money will not help either; here in this post, we have charted out the ways how you can get rid of financial obligations.
How to Pay off Debts Quickly
1. Stop Borrowing and Start Organizing
The first step to getting rid of the debt trap is to stop borrowing money. Don’t swipe your credit cards often, don’t take loans, and don’t make impromptu purchases. Reshaping your financial attitude is the fundamental change that you can make to release yourself from the trap.
Organize the debt details of exactly how much you have to pay to close the deal with them. Start creating a list of various debts along with the EMI, tenure, interest rates, etc. It will help you to determine the costliest debts and how you can repay them.
2. Create a Budget
The next step to save yourself from the debt trap is figuring out where you invest the money. It can be difficult to make financial cuts without having a full picture of where you pay and how much you spend. Keep a schedule of monthly bills, daily spending, and EMI that you are paying.
Several methods can help you monitor your investments, create an Excel sheet, use app trackers, make notes in a notebook, note down the receipts, bank app trackers, etc. Whatever method you select, ensure that you regularly put the expense in that table to obtain the full picture of your financial decisions.
Taking notes mentally is not enough, but the expenses chart is in black and white. This way you can achieve your financial objective and get rid of your debt fast, but don’t forget to create room for emergency funds.
After the debts are paid, you can come up with more financial goals. Add them to the budget to make yourself accountable.
Related – 6 Practical Budgeting Tips to Save More Money
3. Create Provisions in the Budget
Life is uncertain, and it comes unannounced. The sudden change or hospitalization may change the scenario. That is why it is important to keep provisions in the budget to support you in any situation. The budget you have made for yourself may differ from someone else.
Flexibility is the key to tracking success and growth. If you have prepared for the future, it will be easy to make adjustments. Sudden events will consume a sizable portion of your income, so keep aside a particular amount for the budget. It will help you to get rid of your debt fast.
4. Dedicate More Amounts Towards Repayment of Financial Debt
If you want to repay the debt fast, you should make an effort to commit more money toward the debt repayment goal. When you make the budget, create an effort towards adding clearing the costliest debts first.
You should at least dedicate 20% of the salary to your goal. Of course, it will help you to clear your financial mess faster. Make it a habit; stick to it even if you have a terrible iron-clad habit of spending more than required.
5. Settle the Costly Debts on Priority
The confusion about which debts to pay first may not bode well if you are a poor decision-maker. The best bet is to target the costliest ones first and pay them.
These are the debts that are draining your finances and are consuming your interest, which may even lead to financial paralysis.
For example, you have borrowed a home loan with an 8-9% interest rate, a personal loan of 12%, and a credit card, or payday loan that can extract 1% per day. The idea is to calculate the liabilities and attack the costliest one to repay them.
In this example, paying your payday loan would be an ideal option.
6. Try the Snowball Method of Payment
If repaying the costliest debt creates turmoil in your mind, go for the snowball method of payment.
You must make minimum payments to all debts in this strategy, but one debt should remain in the focus area. You will pay it a little more than the rest so that it gets paid off quickly as a result.
When the debt is paid off, you can reallocate funds to another one. Keep repeating the process till all your debts are repaid. Over time, your all debts will be repaid.
For example, you are committing 20% of your income towards monthly debts, which comes out to be $300. If you have 3 debts in a store, you will pay $50 to the first, $50 to the second, and $200 to the third debt.
Once the third debt is paid off, you will repeat the same process, paying $50 to one debt and $ 250 to another.
Remember, the total amount you are paying towards the debt is consistent, but the debts are getting repaid quickly.
When deciding which debt to pay fast, it can be debt with a higher interest or debt that has been longing for over a period. It depends upon your situation.
7. Consolidate the Loans
If you are the one having several debts on your head and you cannot keep track of it. The best way is to consolidate them into one loan, which will leave you with a single EMI. Personal loans, credit card loans, and home loans can be consolidated.
Debt consolidation comes with a panoply of benefits. You can swap a high-interest rate loan with a low-interest rate loan. In this way, you can save on your expenses.
Many debt companies are there to help you. However, be cautious about such methods because transfers often come up with upfront expenses.
8. Renegotiating the Credit Card Debt
You may know that renegotiating credit card debt is possible and can lower your monthly payments. It is also known as debt settlement.
But how can you negotiate with them? You have to call the lenders to lower the interest rate on the credit cards.
As long as the payment track record is good, you have a high chance of winning the odds in your favor. You can renegotiate the credit card fees.
If the creditor is unwilling to work on a new interest rate, you can plead with him if he can waive off some fees or recurring charges.
The constant requests and phone calls can help you to lower your debts. Many companies like cable, phone, insurance, and electricity providers provide you with such options.
Don’t hesitate to ask. As long as you are continuously making the payments and efforts to clear the debt, the situation will improve.
Related – How to Use a Credit Card Wisely: Top 10 Tips
9. Automate the Payments
If you are low on financial discipline, start automating the debt payment. Create an ECS mandate with the bank to automatically deduct the EMI for the selected date.
The timely payments will reduce your debts and tenure and save you from harsh penalties, unavoidable interest rates, and poor credit scores. Therefore, start making payments monthly.
10. Find a Pipeline of Income
Create an effort to increase your income by joining some part-time courses. The idea is to support your living without pain.
There are various ways to earn additional income. You can earn money by sleeping, listening to music, transcribing, etc. Find a gig that is relevant to your interest and knowledge.
11. Don’t Fall into the Trap of Loan Settlement
When you are financially strained and unable to pay your debts, the lender may call for a loan settlement. They may give you an option of part payment of your loan to get it settled.
However, it will be reflected in your credit report, thus making it difficult for you to borrow in the future.
12. Keep Track of Credit Score
A healthy credit score certifies that the borrower has repaid their loans or he is not in a financial mess. If your score is up to the mark, you should find out the reasons behind it.
It may be because you have borrowed much beyond the capacity, made late payments, defaulted, or gone for loan settlements. When you close your loan account, ensure that you check your credit score report and see any discrepancies.
13. Don’t give up
Don’t file for bankruptcy easily. Many professional agencies are there to help customers to get out of the debt trap. These companies know even high-income groups can be messed up with debt, so they will create strategies for you to live debt-free.
They will sync your spending habits to suit your lifestyle. The sooner you create good spending habits, is good for you and it further helps you to get out of debt fast.
Wrapping it Up
It is challenging to pay off debts quickly, especially when you are all into it.
However, don’t lose hope, follow these tips and tricks, and you will pay the debts.
