Pay Off Debt Faster With These Simple Actions

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Debt is like an anchor pulling your finances down. It’s easy to take on debt, but hard to recover from it. Part of recovering from debt is realizing the truth about it. Once you know it, you can face it with a plan.

But what are some ways to face your debt and defeat it? There are many myths out there that can actually create more debt. Here are some ways to eliminate debt and avoid additional debt.

Create a Budget and List All Debt

As cliché as it seems, you’re a ship foundering without a budget. You must know where you stand. A budget is writing down income and expenses. Hopefully, they balance, but when they don’t, you need to take steps to cut those expenses.

Part of creating a budget is writing down all your debt. You can’t eliminate it if you don’t know exactly what you owe and to whom. It’s not fun to face and may make you anxious, but it needs to be done.

Every credit card, car loan, personal loan, student loan and mortgage must be written down. Write the interest rate of the debt next to the amount. You'll then see what each one costs you besides the obvious full amount.

Also write down what the minimum payments or if it’s an installment loan like a car or mortgage, write down the payment. You’ll then know how much money goes out the door each month.

Remove Your Credit Card From Online Stores

It’s too easy to buy something when your credit card is stored in your favorite store. If you must take the extra step to fetch your wallet, that’s a step that may deter you from purchasing the product.

Make it a point to remove your credit cards from all your favorite online stores. The harder you make it to charge, the less you'll be in debt.

Debt Repayment Methods

This is the time to use the list of debt you wrote. There are two types of debt repayment methods: the avalanche method and the snowball method.

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With the avalanche method you pay the highest annual percentage rate (APR) first. This method saves you money in the long run. It prioritizes the biggest balances first. But it takes a long time, and many people give up before they accomplish their goals because they become demoralized.

The snowball method gives quicker results and creates a greater sense of accomplishment. Put your list of debt in order from the smallest to the largest. The snowball method is when you pay off the smallest debt first. You do this by increasing monthly payments.

Pay the minimum on the other debt until you pay off that small one. Once you take the money you were paying on the small one, then add it to the next biggest. Keep this up until you have all your debt paid.

Some people say the avalanche method is better because the math is better. But if you were using math, you wouldn’t be in debt. Go for quick wins.

You’ll find a greater satisfaction and sense of accomplishment as you quickly pay off various debt. This will motivate you to keep going. It changes your behavior.

Talk to Your Credit Card Issuer

You may not realize it, but credit card companies sometimes negotiate terms. They want to be paid as much as you want to rid yourself of the debt.

Although there’s no guarantee that it will work, ask your credit card company for a reduced APR. They may give it to you if you’ve been making your payment on time.

Avoid Debt-Settlement Companies

Debt-settlement companies take advantage of desperate people. They say they can negotiate your debt down for a fee. And it’s usually a high fee. They usually just take the money and leave you in full debt.

You don’t need them because you can negotiate a reduced debt with any company.

Avoid Taking a Loan to Pay Debt

The sound of withdrawing money from your 401(k) or taking out a home equity line of credit (HELOC) should be a warning in itself.

You think the equity in your house will save you from your pile of debt, but all you’ve done is trade one debt for another. You have temporary debt relief, but have dug into a deeper hole. You still have to pay off the loan, and it’s a big one.

Withdrawing from a 401(k) will cost you taxes and penalties, which makes paying off your debt a wash. You now owe more, and you’ve lost retirement funds.

If you take a loan from your 401(k), you still have a monthly payment. And if you leave your job, you must pay the whole chunk back at once.

Neither one of these options makes sense.

Change Your Behavior

Stop using your credit cards unless it’s an emergency. Even then, you should have an emergency fund to cover that.

Don’t use debt-settlement companies, and avoid using a loan to pay off debt.

It comes down to changing your behavior. You need to break up with debt.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.