Below we will look at strategies that will help pay off debt and manage debt in general. Yet there is some preliminary work to handle beforehand, which is to list all the current debt that you have. This will include the type of debt, be it a loan, credit card, mortgage etc and the amount owed.
Then you can follow the plan below:
- Have a budget.
- Find the highest-cost debt and pay it off
- Look for the smallest debts as well
- The minimum balance is not enough
- Balance transfers are your friends.
- Work to eliminate the need for credit cards
- Use technology to help track your progress
- Remove temptation by clearing out credit cards from your online stores.
- Consider selling items that are no longer needed.
- Build better habits
- Hustle to make more income
- Debt consolidation is a possibility
- Seek help
- Stay out of debt and keep up the good habits
Have a budget
Always have a budget set out, specifically a monthly one that follows when you get paid. You can use a simple spreadsheet or Excel or even consider third-party apps focused on budgeting. This starts your journey to pay off debt.
Find the highest-cost debt and pay it off
Known as the avalanche method to pay off debt, you’re looking at what costs you the most, specifically through interest rates owed.
Joseph Goetz, who founded Elwood & Goetz, says, “Americans don’t handle debt well usually. Many are trying to rush paying off large balance debts, such as their mortgage, faster, and ignore paying off those high-interest rate credit cards.”
Look for the smallest debts as well
This is known as the snowball way to pay off debt. It’s about getting rid of those smaller debts out there, and when they are paid off, it can lead to being motivated to continue the journey. Of course, always ensure that you’re able to have strong cashflows to handle this.
The minimum balance is not enough
If you are looking for debt reduction, then you’ll want to go beyond those credit card minimum balance due options. Make sure that it fits into your overall debt payment strategy and is the best option for higher payments.
Balance transfers are your friends
There are times when you can get a credit card offer to transfer your balance onto it and get a promotional low to no interest rate on it for a certain period of time. This can help to lower the cost of paying off the debts and enable you to pay some credit cards off faster.
Work to eliminate the need for credit cards
Do your best not to rely on credit cards and put them somewhere without easy access. This will make you less tempted to use them and add to your overall debt owed.
Use technology to help track your progress.
There are many tools out there that can help visualize your journey and where you stand with your overall progress. Whether you’re using tools such as Undebt.it or your annual free credit report to get a complete overview of your debts, you’ll know where you stand.
Remove temptation by clearing out credit cards from your online stores
That’s right, just like you’re putting your card away to physically not be tempted, you’ll need to go online to your eCommerce sites where credit card information is easily stored and delete it from there as well.
Consider selling items that are no longer needed
These are items that you don’t want any longer and could be a great way to free up some cash. If you have high-end items, you can consider sites such as RealReal or even Poshmark; otherwise, you can use common channels as a way to get rid of items and thus pay off debt.
Build better habits
Colin Moynahan, who is a founder and financial planner for Twenty Fifty Capital, said that people who spend so much to get into debt are from a behavioural pattern.
He goes on to add, “You have key expenses such as shelter, food, and things such as health; everything else is extra or discretionary. If you want to eliminate large debts, it’s about refocusing what is a priority, and people will quickly see how much their spend is unnecessary.”
Hustle to make more income
You can find extra time to do things on the side. It’s not exactly a second job, but small, temporary gigs. This will help you with additional income that can get you to pay off debt fast. These are simple things that you would have time for anyway.
Debt consolidation is a possibility
This is especially useful if you find yourself with decently good credit as well. You can take out one major loan and put all your current debts into it to consolidate and make only one monthly payment. This can also lead to favourable interest rate terms in some cases. Do keep in mind that you need to be careful not to re-use the debt channels that were just paid off, especially with credit cards.
Seek help
There are agencies and companies out there that can help you with credit counselling. They are there to help you through this overwhelming process and give you advice to consider.
Goetz adds, “There’s a network out there that’s simply focused on helping you out with debt-related issues and is nonprofit. Don’t get scammed with for-profit channels that pretend to act in your best interest but will simply do fraudulent activities.”
A good option is the National Foundation for Credit Counseling
Stay out of debt and keep up the good habits
That means it’s a never-ending battle, even once you have done the feat of paying off your debt. Keep those new skills and financial strategies you’ve learned and go forward.
Moynahan adds, “You need to look at the root cause, only then you’ll really have paid off your debt owed. Otherwise, you’ll relapse eventually and get back into debt.”