The fastest ways to pay off debt
Right now, many Americans are tens of thousands of dollars, if not hundreds of thousands of dollars, in debt between their mortgage, car loan and other loans or credit cards. After all, it's normal to finance your home, car or even day-to-day purchases in some cases.
At some point, though, you may decide that the amount of debt you've accumulated needs to be addressed — especially if your debt payments are so high that they're damaging your finances. And, that debt load can be even more stressful if you're unable to afford your minimum payments each month.
The good news is that you don't have to continue to feel overwhelmed by your debt. With an effective plan in place, you may be able to pay your debts off quickly.
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The fastest ways to pay off debt
Nobody wants to be in debt forever. If you're like most people, you want to get out of it as quickly as possible. Here are five of the fastest ways to achieve debt freedom:
Take advantage of debt relief services
Debt relief services are designed to make it possible for you to pay off your high-interest debts in a reasonable amount of time without financial strain. Debt relief companies usually accomplish this goal in one of three ways:
- Debt consolidation loans: Debt consolidation loans give you a way to pay off multiple high-interest-rate debts with one loan. These loans typically come with low fixed interest rates and fixed payments, making it possible to pay your debts off far faster than you would otherwise.
- Debt consolidation plans: Debt consolidation companies negotiate lower interest rates with your lenders. They'll also create a fixed payment plan for you. You make a single monthly payment to the debt consolidation company and the company pays your lenders individually on your behalf.
- Debt settlement/negotiation: Finally, debt settlement companies don't just focus on interest rate reductions and fixed payment plans; they also negotiate the amount of money you owe on your accounts. Although this option typically leads to the largest savings, it can also have the most detrimental impact on your credit score when compared to debt consolidation loans and programs. Nonetheless, this is a strong option to put an end to high-interest debt-related financial hardships.
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Reduce interest where possible
Aside from the debt relief options mentioned above, there are a couple of other ways to reduce your interest rates. Those include:
- Balance transfer credit cards: Balance transfer credit cards often offer low promotional interest rates for a predetermined period of time. That could mean you'll pay 0% interest for a year or longer. You can transfer high-interest balances to these cards to save money and pay your debts off faster. Just be sure to make a plan for dealing with a higher rate once the promotional period expires. That plan could be as simple as taking advantage of another balance transfer credit card or paying all of your debt down before the promotional period ends.
- Call your credit card company: If you've been a loyal customer for a while, a simple phone call to your lender's customer service line could lead to a lower rate. Simply ask if you qualify for an interest rate reduction. Be sure to be honest about your financial status as well. If you're facing a financial hardship, your lender may offer more rate reduction options.
Focus on your highest interest rate first
High interest rates make it harder to pay off debts. So, when you have extra money available, you should use it to make additional payments on your highest-interest debt. It's OK to make minimum payments on the rest of your accounts. Once your highest interest rate account is paid off, focus on paying off your card with the next highest rate and continue to do so until all of your debts are paid off. This strategy, known as the debt avalanche payment method, could save you significant amounts of time and money in the long run.
Take advantage of opportunities to earn extra income
Think about ways you can earn extra money outside of your day job. For example, if you're an artist, consider opening a booth at the local art fair to sell your work. This could lead to a second income that can help you pay your debts off faster.
Cut expenses where possible
You may also be able to cut your expenses. By doing so, you could free up cash to pay your debts off faster.
"Negotiate with your utility companies for lower rates," says Brian Martin, Wealth Manager at Merit Financial Advisors. "Often, you can contact your electric, gas, cable and phone/internet providers in an effort to lower your monthly rates. In many cases, simply informing them of your intent to terminate service or switch to another provider will elicit a lower rate offer."
You could also reduce the number of times you eat at restaurants per month, cut the cable cord and opt for streaming services, drink your coffee at home or take advantage of a seemingly endless number of other cost-cutting measures.
The bottom line
If you're in debt, you may feel like there's no way out. But you don't have to deal with the stress of mounting debt forever. Take advantage of the strategies above to put your debt behind you as quickly as possible.
