Debt has become a serious issue throughout our society in the past few decades. From individuals, to states, to institutions, to entire countries, it seems that everyone has a chunk of debt that needs to be paid off. Heck, if you think about it, even our currency is in itself debt. When I was in my early twenties, I started to get myself into debt and rarely had the financial discipline to keep a budget or truly ‘get’ how debt works on a fundamental level. It is one thing to know that you will have to pay back the money at some point but quite another thing to see that while you’re paying it back, much of your repayment is going straight towards interest and not the actual principal.
Now that I am older and somewhat wiser with my finances, I have been aggressively tackling my debt of late in hopes that I can get rid of my credit card debt within a couple years and begin chopping down that big sucker they call ‘student loans’. This month, I have managed to pay off 11% of one of my credit cards’ balances and plan to pay off even more towards the end of September. With an aggressive policy and strict spending discipline, I know that I can eliminate that particular debt within six months.
Do More Than the Minimum
Even on a small debt (less than $1000), paying the minimum is a bad proposition. Not only does it take longer to get out of the shadow of debt, you end up paying the creditor way more money than the original amount borrowed, thanks to interest (which can be 15-20% or higher). It was interesting to see that when I was cash strapped and could only make the minimum payments, how little the balance would move each month. In some cases, the balance would actually increase, which is particularly demoralizing.
One popular method, is to double the minimum payment. So if the minimum is $20 do $40 or as close to it as possible. I like to make more than one payment each month. The first one, I make the minimum payment or a bit more and then on the second payment, I throw as much as I can afford at it during the end of the month. This way, I know I’ve at least got the minimum payment made during the month and then after my expenses have been paid for that month, I can really put some weight behind it.
Read Your Statement Carefully for Fees
Many credit card companies will have things like Payment Protection or credit score reporting which charge you fees either every month or quarter to use. If you haven’t done so already, call up the credit card company and get these cancelled. Payment protection isn’t really necessary if you’re planning to pay on time each month and properly budgeting. The credit card company when you call them will try to get you to keep these programs and generally make it a hassle just to cancel them (they ask you 50 different ways if you’re sure you want to cancel), so try to call when you’re in a good mood and stay calm.
No More New Debts
Emergencies do happen, which is why it is a smart idea to build an emergency fund for cash. However, under normal circumstances, one cannot go on creating new debts each month. Learning how to budget and live within your means can go a long way to making sure that you don’t have to accumulate any new debts each month.
Take a Stand Against One Debt
One way to pay off debt faster is to focus most of your money on paying off the credit card or loan with the highest interest rates first. High interest rates are absolute killers when trying to pay down debt and preserve your wealth each month.
Another method is to go after the debts with the smallest balances first. This way you can quickly pay off a small debt and at least win a moral victory for yourself. For me, the credit card with the highest interest rate was also the one with the lowest balance, so it’s both important for me to pay it off but also close enough within reach to be tangible.
It is often an option to roll one or more balances onto another credit card at a lower interest rate and pay that off at a more reasonable rate. A lower interest rate can end of saving hundreds or even thousands of dollars in debt over time. It is however, important to adequately research the balance transfer offer and make sure that it isn’t simply a short term fix or one with hidden fees sometime down the road. When done properly, this option can save one big bucks.
Get Your Spending in Order
Take the time to look over your bank statements and other bills to calculate exactly how much you are spending each month. One you have a list broken down into categories of spending, look for places you could easily cut. Got a gym membership? Learn how to workout at home for free. Could you cut food costs by keeping better track of what you’re buying? Take a good, hard look at what you’re spending each month and find ways to reduce that amount. Once you have a budget, stick to it and you’ll be amazed by the type of money you can free up to pay off debt.
Learn How to Make More Money
Do you have time to get another job? At least temporarily? Instead of watching TV each night, could you start a website or blog and make extra cash that way? I know it sounds like a lot of work or an improbable thing to create extra income online, but it really can be quite simple. I have generated thousands of extra dollars over the years by building websites or getting paid to be a writer for others. Either way you decide to go about it, if you really want to get out of debt as fast as possible, then making more money is something that must be done.
Here are some posts I’ve written on that:
How to Make Money with a Niche Website
How to Get Ideas for Your Niches Website
How to Setup a Website with Hostgator
How to Hustle Money