How to Get Out of Debt Faster
Many face what can seem like an endless list of bills and financial responsibilities without enough money to go around. With so many in debt and struggling to make payments, it can be a lot to face and some choose not to do anything.
More than a third of Canadians [1] spend more than they earn, and many will use credit to bridge the gap. With so many living paycheque to paycheque, one little setback or unexpected expense can throw their budget out the window.
Since bad credit affects you in many ways, let’s look at what you can do about it and how to get out of debt faster.
Stop Using Credit Cards
As much as it might pain you to hear, but not using your credit cards while trying to get out of debt fast is a smart start. Unless you don’t carry a balance and your debt exists somewhere else, then putting an end to credit card use would be wise.
RELATED: Fixing Your Credit Card Debt
Don’t Just Pay the Minimum Payment
If you are carrying around the average balance owed on credit cards which is in the neighborhood of $15,000, and making the minimum payments, it will take you over 13 years to pay it off. And that’s if you don’t add additional charges on the card.
You will pay down any debt on credit cards much faster by making more than the minimum monthly payments and be closer to living a debt free life. When you properly manage your debt, you tend to pay less on interest and are faster to pay off any outstanding balances.
Tackle Balances by Interest
As with most debt, paying down what is owed with the highest interest first is usually your best move to start. Prioritizing any debt with higher interest balances can not help you only save significantly, it can also help you to get out of debt sooner. One method known as the debt avalanche, this is where you make minimum payments on any of your debt, and use the remaining or leftover funds for paying off debt with the highest interest.
Cut Your Spending
If you give your spending a hard look and separate any necessities from things you want, crave or desire you can start to see what the essentials and luxuries are. It might be hard to go cold turkey, so put yourself on a budget. If you eat out daily, brown bag it a few days a week. If you go out for drinks or dinner often after work, cut it in half. Over time, reduce the amount of going out and other non-essential spending and you’ll have more money to pay down debt. Reducing the amount you are spending on going out can provide significant funds to use towards paying off your debt faster.
Debt Consolidation
If you carry high interest loans as part of your debt, it can be worthwhile to take a look at how debt consolidation can reduce the amount of interest you pay, and even monthly payments. Suppose you had a high interest loan you were paying off, along with any credit card and other debt. If you determine the average interest is higher with your combined debt than what you qualify for with a personal installment loan, then you might consider a debt consolidation loan.
Between the Sofa Cushions
If you look at your current bills and expenses, there’s always some more opportunities to save even more. Look at recurring expenses and monthly subscriptions, there’s sure to be a few more ways to save. From specialty tv channels or cellular add ons to other packages, those small dollars do add up. When you calculate the annual costs you might be surprised.
RELATED: How Smart Borrowing Can Help You Save
Create A Plan
Thinking you could pull this off without a plan would be a mistake. If you want to dig yourself out of debt, you’ll want to track your spending and use budgeting software to help you with your financial journey. Not only can this help you figure out how to budget, you can determine what it will take for you to get out of debt and how long it will take before you’re in the clear. There will come a time when you would like to borrow, and getting a personal loan with really bad credit is going to mean you’ll have to pay high interest rates. Making a plan could improve your future options. Paying off debt, lowering your debt to income ratio and improving your credit score should put you in a position later where you could qualify for loans with better interest rates.
RELATED: Ways to Improve Your Credit Score
Start An Emergency Fund
Even if you can only afford like $10 per week to put away, that adds up and would be over $500 in a year, which is more than the average payday loan amount borrowed. Life is full of surprises, including financial ones, and having an emergency fund on standby should be part of the plan. Even if you live on a tight budget you can probably find ways to cut expenses so that you woudl be able to put some money aside each week.
Last Word
In closing, a few other ways you might get ahead and get out of debt faster can include watching for sales, coupons, eating out often, try consignment shopping, starting a side gig, and of course making a budget and sticking to it.
Personal finance is something that isn’t exactly taught in school for some reason, and it’s a lifelong skill that everyone should know. But it’s never too late, and if you use the advice above as a primer or foundation, you are off to a good start.
Taking care of your debt will help later when trying to prequalify for a personal loan and comparing your options.
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