Debt has a way of interfering with your financial dreams and slowing your journey to financial freedom and building wealth. Unless you pay off your debt and stay out of debt, it’s impossible to get ahead.
Paying off your debt fast is all about how you manage your debt. Even for those with little debt.
There are two types of people in debt – those in little debt and those in large debt. If you are in little debt, you have to make sure your debt does not get out of control by keeping up with your payments.
On the other hand, if you have large debts, you have to put in more effort into paying off your debt. You probably have more than one debt to pay. That means you have to juggle your payments on all your debt at the same time.
Paying off debt requires effort, determination, dedication and diligence.
Important Terms used in debt.
In order to understand your debt, you need to familiarize yourself with some of the terms used in debt.
Interest rate is what lenders charge you for your loan. Borrowed money is not free and lenders make money through your interest rate.
Principal is the money you borrowed without the interest added
Balance is the total amount you still have to pay on your debt inclusive of your interest.
Minimum payment is the lowest amount you are required to pay on your debt every month inclusive of your principal and interest. If you don’t pay or pay below the minimum, you are fined and these fines just add up your debt.
Regardless of how much debt you are in, the following will help you pay down your debt balances.
1.Know how much you owe and to whom.
This is obviously the first step to paying your debt whether large or small.
Make a list showing all your debt, your creditor, the amount of debt, interest rate, monthly minimum payment, and due date of each.
You need to know and confirm all your debt in order to move to the next step of paying your debt.
With this list, you know how your debt looks like. It gives you a reality check and puts you in a state of awareness.
When you start making payments, regularly update your list as per the changes and your balances. Besides the list of your monthly bills, have your debt list
2.Analyze your finances – how much you earn.
Analyzing your finances in terms of your income will come in handy as you plan to pay off your debt as fast as you can.
Knowing your income and your priority expenditures will help you know how much you can afford towards your debt payment.
When you know how much money you are working with, you are able to calculate what you can set apart for each debt.
As you analyze your finances, come up with a new budget that is inclusive of the monthly payment amount for each debt. Cut whatever expense you can cut and set that money towards paying your debt.
3.Pay your monthly bills on time.
Once you have analyzed your finances, make it a priority to pay your monthly bills on time. This helps you avoid late payment fees and fines which makes it harder for you to pay off your debt.
The more you delay paying your bills, the more the late payment fees and this interferes with your debt payment and increases your debt amount.
To help you stay in track, mark your calendar, or set reminders in your phone or computer calendar to remind you of your bills before their due date.
If you have several sources of income, have a bill calendar showing which paycheck pays which bill and when it pays it.
In case you miss a payment, don’t wait until the next payment to make a past payment, pay it as soon as you remember it.
Come up with a debt payment plan.
According to financial guru Dave Ramsey, use the snowball debt payment method where you pay your debt from the smallest to the largest regardless of interest rates.
Create a chart or a pyramid according to the size of your debt from the smallest to the largest. Pay all your small debts first then add the payment amount as you go up to the largest.
4.Make minimum payments on all your large debts.
Your plan being to focus on paying off your small debts as fast as you can, don’t put all your effort on your large debts first.
However, every debt has a required minimum payment you can make every due date and you need to make sure you make it on time to avoid late payment fees. This will at least help you have your account in good standing and have your debt a little less.
5.Pay as much as you can on your smaller debts.
After paying your monthly bills, and making the required minimum payment for all your large debts, pay as much as you can on your smaller debts.
You can come up with a decision to finish your small debts in five months or 1 year putting your due dates in mind. Whatever time period you choose, pay as much as you can towards your small debt every chance you get.
This way, you will pay off your small debts very fast.
6.Repeat until you have paid each debt in full.
Keep paying your monthly bills on time, making the required minimum payments on all your large debts, and paying as much as you can on your smaller debts.
When you are done paying off your smaller debts, increase your monthly payment on your larger debts. Give yourself a specific time frame to finish paying off your large debts. From this point, keep paying off your larger debt as much as you can.
With time, you will look back and your debt list will be empty.
Once you have paid off your existing debt in full, avoid adding more debt. Develop new money habits that help you to be more in control of your finances and your spending habits to avoid falling back into debt.
7.Know when to call it quits and ask for help.
Sometimes debt can be way too much and you might struggle to pay your monthly bills and your debt at the same time.
Sean Pyles a debt writer at Nerd Wallet says it might be time to get outside help if you are having a difficult time keeping up with your debt payments. This is especially if your debt is more than 50% of your gross income.
There are so many debt relief options you can consider to help you deal with your debt. You can get debt management plans from debt relief companies such as debt counseling agencies.
According to debt experts, other options include debt consolidation, debt settlement, and to the extreme, filing for bankruptcy.
Debt consolidation is a debt refinancing option that allows you to take out one loan to pay off other numerous debts.
Debt settlement allows you to reduce debt by negotiating with your creditors and getting a new and lower payoff amount.
Paying off your debt is all about initiative and with every debt you pay, you gain the motivation and you keep paying them until there is no more debt weighing you down. Don’t stop until you are done.
Use the snowball method and pay your debt from the smallest, you see progress and this will motivate you to keep going.
Push yourself to the point where there are no more payments to make, no more calls from collectors explaining yourself and you no longer watch your paychecks disappear to debt every month.
Avoid debt as much as you can to avoid going back to square one and having more and more debt to pay.
Don’t allow debt to stand in the way of building wealth and your journey to financial freedom.