When you have a lot of debt, it can feel like a drain. Many people who owe money find it scary to look at their credit card statements and loan balances. You’re not the only one who’s at the end of their rope and wants to know how to Pay Off Your Debts. In this post, we’ll look at eight easy ways to get out of debt and stay out of debt.
8 Strategies for Pay Off Your Debts
1. Gather Your Data
Before you do anything else, you should find out as much as you can about your finances. Get copies of your TransUnion, Equifax, and Experian credit reports and look through them carefully. Write down your score at each bureau.
Then, find the most recent statement for each of your accounts:
- Student loans
- Personal loans
- Auto loan
- Charge cards
- Store cards
2. Make a list of your money
Use the papers you collected in step one to make a complete list of all your debts. This might be hard, but it’s an important part of any plan to get out of debt. When you list a debt, you should include the following:
- The name of the debtor
- Your current balance
- Your smallest payment each month
- The rate of your loan
Take a deep breath, add up all of your debts, and look at the sum. Think about how it would feel to have no debt. Then, decide on a set number of “months to freedom,” such as 36 months or 60 months. Divide your total debt by the number of months you came up with to get a rough idea of how much you’ll have to pay each month.
Remember that as the months go by, interest will add to your total. If most of your debt is from credit cards, you might be able to make up for the higher APR with a 0% balance transfer offer, which we’ll talk about below.
You’ll also need to figure out how much of your pay you keep each month to see if your goal is possible or if you need to change the length of your payments. You can make a new budget based on your monthly net pay. Again, we’ll talk more about this in a bit.
Tip: Check out Tally if you don’t like doing math by hand. You can use Tally to figure out where you stand, add up your expenses, and pay down your credit card bills.
3. Lower the rates on your loans
You’ve probably already seen that our monthly payoff plan has one flaw: as you pay off your debt, the interest keeps adding up. The more time you take to pay back your loan, the more interest you’ll have to pay. Depending on how much you pay off each month and your interest rates, the interest you pay could make it take a lot longer to pay off your debt.
The way out of this problem is to lower or get rid of your interest rate. Here are a couple of ways to do that.
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Credit cards with low interest
Look for a credit card with a lower interest rate to replace the one you already have. If you qualify for a 0% introductory offer on balance transfers, move your high-interest credit card balance and lose the APR for a year or more.
Most likely, you’ll need a good credit score to get the best deals. Sign up for extra credit to check your credit scores before you apply. You’ll be able to see 28 of your FICO scores, including the ones lenders use most often.
Let’s say your credit card balance is $5,000 and your monthly payment is $200. Your APR is 29.96%. Here are two possible situations:
- You don’t move, so you pay off your debt over 40 months and pay $2,937 in interest.
- You choose a card with an APR of 15.24% and pay $1,054 in interest over 31 months to pay off your balance.
If you instead chose a 12-month 0% balance transfer card, you could pay off almost half of your balance, or $2,400, without paying any interest over the next year. After the interest-free period, if the APR was 15.24%, you could pay off the rest of the debt in 14 months and only pay $220 in interest.
4. Pay more than what’s required
Even if you only pay $5 more than your minimum payment each month, this can help you get out of debt faster. Some mortgages have penalties for paying them off early, while most credit cards don’t. Let’s look back at the credit card balance we talked about earlier to see if paying $50 more each month would help.
If you pay $250 on a $5,000 balance instead of $200, you could:
- With a 29.96% APR credit card, you’ll pay $2,014 in interest and pay off the whole balance in 29 months.
- With a 15.24% APR credit card, you’ll pay $805 in interest and pay off the whole balance in 24 months.
- 0% APR introductory credit card offers to let you pay no interest on your balance and pay it off in full in 20 months.
You can save money on personal loans, car loans, and student loans by using the same idea.
5. Bring in more money
You can’t just make more money by working harder or getting a job that pays more. If it were, everyone would change jobs and make more money until they no longer need credit cards. Still, you might be able to find ways to make extra money, at least temporarily, until you pay off your debts.
Asking your boss for a raise is the most obvious way to bring home more money. Set up a meeting and talk about what you’re good at and what you’ve done well. If you can’t get a raise right away, ask your boss what you need to do to improve your hourly rate or salary in the future.
Side jobs can also bring in extra cash, and they don’t have to be full-time. You can make a little more money by walking dogs, cleaning, babysitting, driving for Uber, or doing odd jobs. You can use Acorns to make money while you shop, or you can use the Smart Deposit feature of Acorns Checking to put a part of every direct deposit into an investment or savings account. The Smart Deposit product is currently offering a $75 sign-up bonus, which makes it even easier to start saving.
6. Get rid of wasteful spending
You can make a lower income work if you spend less, and we don’t mean skipping your morning coffee. Review any monthly fees, like $6 here or $7 there, to see if you really need the subscription. Cut down the number of times you eat out to once a week or once a month. Switch to store brands instead of more expensive name brands.
You can use every bit of money you save to pay off your debt. When your payment plan is over, you can always sign up again, eat out more, or switch back to your favorite foods.
7. Make a new spending plan
Having a budget can help you pay off your debt faster and give you a better handle on your money. Write down how much money you bring home every month, and then make a list of your monthly expenses, like rent, insurance, trash pickup, cable, childcare, public transportation, and so on. Include the amount you plan to pay each month and check how much is left.
Then, make a budget that is reasonable and try to stick to it. It can be hard to do this, but if you can keep your spending in check, you’ll have a little more money to save at the end of the month.
8. Start a fund for emergencies
Even a small emergency fund can give you a sense of accomplishment. You can also use the money in your savings account to get by if you lose your job or have other financial problems in the future.
Many financial experts say that people should keep an emergency fund with enough money to cover their bills for six months. If you think that’s a lot, you’re not the only one. Many people find it hard to imagine saving that much money right now, especially after COVID-19. Still, try to save something, even if it’s not as much as you should. Your hard work will pay off over time, and you’ll build up little savings.
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