Holding too much debt can cause financial hardship in several ways. You may struggle to pay your bills, or your credit score could suffer, making it more difficult to qualify for future loans like mortgages or auto loans.
If you're carrying a significant amount of debt, you can take several steps to reduce it quickly and get on a healthy financial path.
Soo Getting out of debt isn’t easy. Sometimes it takes all you have to keep up with monthly bills and save for a rainy day. But if you only make the minimum payments to your creditors, you risk getting trapped in debt, and it could take several months or years to dig yourself out of the hole. However, there are many ways to get out of debt. Using a debt management strategy like the snowball method, debt consolidation or taking advantage of financial windfalls can help you get out of debt quicker.
How to Get Out of Debt Fast
Paying off your debt can help you improve your financial health, feel more financially secure and reach long-term money goals. Here are strategies and tips for getting out of debt faster.
How To Get Out of Debt
Debt can include mortgages, student loans, credit cards, and other types of personal debt. Carrying too much debt can be stressful. Getting out of debt can put you in better financial health and open more opportunities.
Understand Your Debt
Review all your loan statements and bills and fully understand how much debt you owe each month as well as how much interest you are paying on the different debts.
Ensure that your monthly debt obligations and necessary expenses are below your income. If you can't afford to pay your essential bills, you will need to take steps like negotiating with lenders or securing more income.
Pay more than the minimum payment
Go through your budget and decide how much extra you can put toward your debt. Paying more than the minimum will save you money on interest and help you get out of debt faster.
Let’s say you have a $15,000 balance on a credit card with 17 percent APR and a $450 minimum payment. If you only make the minimum payment, it will take almost four years to repay the balance. You’ll pay about $5,500 in total interest.
If you paid $550 a month, or $100 more than the minimum, you could repay the debt in less than three years and pay only $4,100 in total interest. To learn more, try using a credit card payoff calculator.
Plan a Repayment Strategy
Instead of just putting extra money toward any of your debt, think about which debt you want to pay down first. Targeting high-interest debt first using the avalanche method will save you the most money in the long run. However, some people find tackling the smallest amount of debt first works better for them because it keeps them motivated.
Increase Payments
Whenever possible, double the amount of payments you make to your debt, especially for high-interest debt. Paying more than the minimum can speed up the time it takes to get out of debt.
By increasing your payment amount, you will be increasing the overall rate at which your debt declines and reducing the total interest you pay.
Use a Debt Repayment Strategy
A debt repayment strategy can help you decide which non-mortgage debts to prioritize first, get out of debt faster and save on interest. Here are two strategies to consider.
Debt Snowball Method
With the debt snowball method, you prioritize your debts in order of smallest balance to largest balance. You'll continue to make minimum payments on all your debts, but you'll apply any spare funds to your smallest balance. Once that's paid off, you'll take any extra money you were paying on that balance and pay it to the next-smallest balance, and so on until all your balances are paid.
The benefit of this method is that you'll pay off your smallest balances more quickly, which can be motivating and act as a springboard toward paying off more of your debts.
Debt Avalanche Method
The debt avalanche method has you pay off your debts in priority of highest to lowest interest rate. This method will save the most money on interest in the long run.
To use this method, make the minimum payments on all of your debts. Then, funnel any extra money you have toward paying off your highest-interest debt. Once your highest-interest debt is paid off, move on to the debt with the next highest rate and repeat the process until all debts are paid.