9 Fastest Ways To Pay Down Debt, According To Experts
If you’re looking to make a dent in your debt this year, you’re not alone. According to Fidelity’s 2022 Financial Resolutions Study, 41% of respondents said paying down debt was one of their top financial resolutions.
When paying off the liabilities you owe, it can be motivating to see that you’re making progress, which means your payment strategies should be quick, efficient and effective. To that end, here are nine of the fastest ways to pay off debt, according to experts, so you can live a richer life.
Set a Goal
“Make sure you understand why you want to get out of debt and what your goal is,” said Jay Zigmont, Ph.D., CFP and founder of Live, Learn, Plan, a financial planning firm based in Mississippi. “Your goal should be SMART: Specific, Measurable, Attainable, Relevant and Time-based. It isn’t enough to say you want to get out of debt. Be specific, such as I want to pay off $6,000 in debt in the next 12 months. Then you can break that down into mini-goals of $500 per month.”
Get On a Budget
“Make sure all of your money has a job before the month starts,” Zigmont said. “If you plan on paying down your debt with what is left over, you will never make progress. There are lots of budgets out there. Budgets are like diets. The best one is the one that works for you.”
Follow the Debt Avalanche Method
“Pay the minimum amount on all debts, but pay an extra amount on the debt with the highest interest rate each month,” said Lyle Solomon, principal attorney at OVLG payday loan consolidation. “Continue it until you stop it. Once you eliminate it, pat yourself on the back. You have reduced your overall debt and the amount of interest you have to pay. Now, you can shift your focus to the next expensive debt.”
Follow the Debt Snowball Method
Here’s an alternative to the debt avalanche method.
“This involves paying off the smallest balance first,” Solomon said. “Make extra payments on the smallest balance while making minimum payments on the other ones. Continue until you pay off the smallest balance. Once done, roll over the amount and apply it to the next smallest debt. Work your way up to the most significant balance. This method works, and you get a psychological boost as you eliminate each debt.”
Increase Your Income
“Finding a way to increase your income will increase cash flow or wiggle room in your budget, providing more money that can be allocated to paying down debt,” said Nika Boothe, founder of Debt Free Gonnabe. “Some fast ways to increase income are to sell items from around the house, ask for a raise, sell services or crafts, babysit or pet sit, etc. The more money that can be dedicated to paying off debt, the more money that can go toward paying down the principal, resulting in less interest being accrued over the time it takes to pay down the debt.”
If you’re wanting to pay off your mortgage faster, consider this suggestion.
“Look into paying your loan twice a month instead of once,” said Trae Bodge, smart shopping expert at TrueTrae. “By paying one-half (of your payment) two weeks “early,” the amount of interest you can save over time can shave years off your loan.
“When I started doing this with my first apartment in my mid-20s, I had to use an external service but nowadays, many lenders offer this service. You just have to ask for it. Make things move along even more quickly by adding a little extra to your principal with each payment.”
Ask for a Lower Interest Rate on Your Credit Cards
“A lot of people don’t know that the APR that goes into calculating their interest rate is variable, which means it can change from time to time,” Boothe said. “However, obtaining a lower interest rate means more of your payment can be applied to principal and you’ll be charged less interest, helping to pay down the debt faster.
“Odds of getting a lower interest rate increase if you’ve had your card for a while and have a great payment history and/or have seen a recent boost in your credit score.
“It’s important to clarify when asking for a lower interest rate whether the new rate will apply to previous and/or new purchases and note whether it’s promotional (for a limited amount of time). A simple yet effective script is, ‘Hi my name is X. I’ve been a customer for X years and I’m calling to see whether I qualify for a lower interest rate.'”
Take Advantage of a Balance Transfer
“You can also transfer your high-interest credit card balance to a low-interest one,” Solomon said. “That’s where a balance transfer comes in handy. You can pay off your high-interest credit cards with the balance transfer card and then repay them within 12-18 months at a 0% APR.”
Use Windfalls Wisely
“When you get money back on your tax returns or a bonus from your place of work, it’s fun to take that financial windfall and book a trip with it or go on a shopping spree,” Bodge said. “Instead, take a chunk and pay it towards your principal, and do so right away so you don’t even miss it. You can still have fun with some of the money, but putting extra money towards your debt like this will help you pay it off more quickly.”
More From GOBankingRates