Being in debt is a drain on you emotionally and financially. It is easy to feel depressed as you see funds taken out of your account each month for something that you don't get to enjoy. Paying off debt each month reduces the amount that you can spend on fun things and limits the amount of money you can save.
Despite the negative aspects of debt, the average American carries $6,270 in debt according to the Federal Reserve's Survey of Consumer Finances. The following steps will help you to gain financial control over your money and get out of debt faster.
1.) Stop Borrowing Money
The first thing that you need to do is stop using credit and borrowing money. When you are trying to get out of debt fast, it is important not to create new debt. While it may be impossible to make only cash purchases, you can resolve to only buying things that you have enough money for in your bank account. Lock your credit card up if it helps to remove the temptation to spend.
2.) Create a Budget
An important part of getting out of debt is discovering how much you are spending each month. A great way to track your spending is to use a budget worksheet. There are also money apps that you can use that will help you track your spending. Examine your monthly spending for the past three to six months. Look for expenses that are high or can be reduced.
Once you have an idea of where you spend your money, it is important to create a budget. Your budget should help you to eliminate debt fast and create an emergency savings fund. Make sure to include living expenses, savings, and spending for fun.
3.) Pay Off Your Debt
If you have multiple debts, you may want to use the "debt avalanche technique" to pay them off. Rather than trying to pay off each debt equally, you will want to pay the minimum payments for each account except the one with the highest interest rate. This is the account that you devote the rest of your funds to pay off. Once that debt is paid off, select another debt and allocate the extra funds towards it. Repeat the process until each account is paid off.
For example, if you dedicate $300 each month to your debt and you have three debts, you would pay $50 to each of them and the remaining $150 would go to reduce the one with the highest interest. Once the high-interest one is paid off, you'll put all of the remaining money towards paying off the second debt.
It is wise to use a debt repayment calculator to help you calculate how long it will take you to pay off the debt. Enter the amount that you plan to pay each month to calculate how long it will take.
4.) Consider Debt Consolidation
Debt consolidation is when you combine your debts so that you only have one payment. It involves a balance transfer from one credit card to another. There are many credit cards that offer a 0% introductory rate for 12 months, but the transfers will often have a fee included. If you do use a balance transfer, make sure you understand the fees involved.
Debt consolidation companies combine the balances of your maxed-out credit cards and create a single loan payment. If you use a debt consolidation loan, it is important to make monthly payments and lifestyle changes to get and keep yourself out of debt. They will evaluate your current ability to pay. They may negotiate the debt for you and create a new loan. This could save you money, but it also could end up costing you more.
5.) Renegotiate Debt
It is possible to renegotiate your credit card contracts and pay off your debt in a large sum instead of the monthly payments. This is referred to as a debt settlement. In order to get a debt settlement, you must give your creditors or lenders a call and let them know about your financial hardship. Request a lower interest rate on your credit card. If you have a good payment history, there is a chance that you can get some debt relief.
You may be able to negotiate credit card fees. If the creditor is unwilling to work with you on a new rate, you can request that they waive some of the recurring charges. This can also relieve some of the financial burdens. Don't be discouraged if the creditors don't want to negotiate the first time, they still would rather recoup some of the debt than send the account to collections.
Benefits of Getting Out of Debt
A debt-free lifestyle allows you to increase your savings, spend more money on fun things, and improves your financial security. Once you pay off your debt, your credit score often improves and that can lead to better mortgage rates, loan terms, and rental opportunities. Make sure you check your credit score to see if the credit bureaus have accurate information. You may need to rebuild your credit or correct a few errors after paying off debt.