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Debt has pretty much become a part of life for many Americans. In fact, 41.2% of all households carry some amount of credit card debt, and those that don’t have credit card debt likely have student loans or a mortgage.
Across age groups, it’s rare for Americans to not have any debt at all. With the prevalence of debt, it’s no surprise that many consumers are looking for ways to pay off their debt faster. If you want to be debt-free, here are seven strategies you can use to demolish it.
1. Debt snowball or avalanche
The idea behind both the debt snowball and avalanche strategies is to focus on one debt at a time. Start by figuring out how much you can put toward debt reduction each month. Look for places to cut back on spending and earmark that money for getting rid of your debt.
Next, take a look at your loan balances and interest rates, and prioritize them. You can order your obligations in one of two ways:
- Smallest balance to highest (snowball): Psychologically the easiest, since you get a quick win by paying off the first debt faster.
- Highest interest rate to lowest (avalanche): Financially better because you pay less interest overall by tackling the highest rates first.
Once you have an order, you keep paying the minimum on all your debts except the first item on the list. Put your extra payment toward that debt. Once you have that balance paid off, transfer the entire amount you were paying toward paying off the next item on your list.
For example, if you had a minimum payment of $50, and you could put an extra $100 toward your debt, you’d be paying $150 each month. Once that first debt is paid off, you’d stick that $150 on top of the next debt’s minimum. So, if that card had a minimum payment of $60, you’d then start paying $210 toward the second debt.
As you can see, payments accelerate your ability to pay off debts further down the list — and you can be debt-free sooner than you thought.
2. Refinance your debt with a personal loan
If you have a lot of payments and interest rates to juggle, you might find it easier to consolidate your debt into one loan. Refinancing your debt with a personal loan can be one way to pay off your smaller balances. That way, you’d only have one debt to think about.
Plus, if your interest rate is lower than the average of all your smaller debts, you can save money and get out of debt faster. Just make sure you stay debt-free once you’re done. It can be tempting to run up new debt when you have freed-up balances, but this could put you deeper in the hole.
3. Consider a 0% APR balance transfer
Another way to get rid of your debt faster is to not pay interest on it at all. With a 0% APR balance transfer, you can pay off your higher-rate debts and then make payments that go entirely toward reducing what you owe.
Most of these cards do have balance transfer fees, so make sure your interest savings will be high enough to offset any fees you might pay.
While this can be a great strategy, though, it’s important to realize that you shouldn’t rack up new debt on newly freed cards. Plus, it’s vital to know when the introductory period ends. Try to make a plan to have the debt paid off before the 0% APR goes away. Otherwise, you’d be stuck with a higher APR.
4. Negotiate lower interest rates
Many credit card issuers will let you negotiate lower interest rates, especially if you have a history of on-time payments. Ask for lower rates that allow you to pay off your debt faster.
You can also ask lenders for a different payment plan. However, when you use this tactic, you might end up having to close your accounts. Think carefully about whether you want a different payment plan to help you become debt-free, and whether it will be beneficial in the long run.
It’s also possible to negotiate other bills and then transfer the savings to debt reduction. Tools like Trim and TrueBill will help you identify unused subscriptions and might even negotiate to lower your bills on your behalf. If you can save $50 on your internet bill and cancel that $80-a-month gym membership, you’ve just found more money that can go toward debt reduction.
5. Put ‘found’ money toward reducing debt
Throughout the year, you’re likely to “find” money. It might be a forgotten $20 bill in your coat pocket, a work-related bonus, a raise, or even your tax refund. Make it a point to earmark any of these extra windfalls to go toward your debt. Even that $20 can help you make a dent in your debt.
And, of course, larger amounts, like your tax refund, can really demolish some of that debt. If you get a raise or have some other regular “new” money, make it a point to put that extra amount toward debt reduction regularly.
When you conscientiously put outside money toward debt reduction, you’re more likely to get rid of your obligations faster.
6. Develop a side hustle
You’re likely to achieve debt freedom much faster if you can develop an alternate income stream devoted to paying down your balances.
From driving for Lyft or Uber to cleaning houses, to picking up an extra shift at work, it’s possible to spend time earning extra money that can then be used to tackle your debt. In some cases, depending on what you do, your side hustle might develop into a full-blown business — allowing you to remain debt-free after the last balance is paid off.
7. Trim the fat from your budget
Americans spent a household average of $3,365 dining out in 2017, according to the Bureau of Labor Statistics. By eating out less, you could potentially put that money toward debt reduction — and become debt-free faster.
Eating out isn’t the only expensive budget item. Look for ways to cut back on other unnecessary spending, including some clothing ($1,833 in 2017) and entertainment ($3,203 in 2017). You might even be able to save money on car costs by carpooling or taking public transportation.
It’s not always fun to be on a bare-bones budget, but it can help you free up some cash flow to put toward paying down debt. Even if you don’t get rid of every comfort and unnecessary expenditure, there’s a good chance you can find places to cut back at least a little — and use the savings to reduce your debt.
Remain debt-free by getting at the cause
No strategy will help you remain debt-free, though, if you don’t get at the root cause of the issue. Figure out the underlying reason you’re struggling with debt, and tackle that issue while you’re paying off your obligations. In many cases, debt is the symptom pointing to a different problem. Address that problem, develop new habits and you’re more likely to stay out of debt once your loans are gone.