Unburden Yourself: Here Are 10 Fast Ways to Pay Off Debt

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Unburden Yourself
Here Are 10 Fast Ways to Pay Off Debt
BY LEVEL FINANCING
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There are various reasons you may want to get out
of debt fast. You may be making sacrifices and
want to spend your whole income. Or you are
trying to increase your savings rate to plan for
retirement. Sometimes you wish to experience the
feeling of being debt-free, lower stress, and
smell roses. Whatever your motivation and your
type of debt (credit cards, student loans,
personal loans), different strategies can help
achieve this goal. This article will focus on ten
fast ways to get out of debt and which ones are
the most suitable for you.
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Budgeting can give structure and direction to the
way you spend money and help you achieve
financial goals faster. These goals could be
saving, retirement, or paying off debt
quickly. When creating a budget, the first steps
are Determining your monthly income (after
taxes) List your essential fixed expenses (e.g.,
health insurance premium) List your essential
variable expenses (e.g., groceries) List your
non-essential fixed expenses (e.g., Netflix
subscription) List your non-essential variable
expenses (e.g., cinema)
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Then allocate a share of your income
to Essential expenses (e.g. 50) Non-essential
expenses (e.g. 30) Debt Repayments and Savings
(e.g., 20) The percentages we used are the
popular 50-30-20 rule. If you want to pay off
debt faster, you can allocate an even higher
money percentage to debt repayments (e.g., 35)
and a lower percentage to non-essential expenses
(e.g., 15).
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Sometimes, loan providers allow you to make
additional monthly payments. This money goes
entirely toward your principal. Adopting this
method allows you to pay off your debt at a
faster rate. Its an excellent strategy if you
have irregular cash flows on top of your primary
income. For instance, a freelancer with both
regular and occasional clients could use the
revenue generated by the latter to make extra
monthly payments. You could also make extra
payments if you have recently sold an asset
(e.g., a car or boat), which provided you some
extra money. Or maybe you have just received a
bonus from your employer for your excellent work.
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Similar to making extra payments towards your
debt, is paying more than the minimum each
month. Its a very effective way to pay off your
debt faster if you have seen a significant
increase in your regular income. If you have
just received a sizeable pay raise or taken a
second part- time job, you can use the
additional money to pay more each month and
become debt-free in a shorter period. You can
also use this option when renting an additional
house or apartment. If all or part of the money
you receive from your tenant is not needed to
cover essential expenses, then using it to make
higher monthly debt payments is a very effective
way to get out of debt faster.
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So what if you dont have a lot of room for
expense cuts or additional income? In this case,
a strategy that could help you get out of debt
quicker is the so-called debt snowball method.
Basically, you start by paying your smaller loan
as fast as you can. Once you have paid it back
entirely, you use the income you have freed to
repay the second smallest loan. Gradually, you
will free more and more income until you are
left with just one loan and a much higher
available income for its repayment. To pay a
higher amount than your minimum payment on your
smallest debt and jump-start the snowball
effect, you can either cut non-essential costs or
look for ways to generate some extra income.
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The debt avalanche method focuses on paying back
the loan with the highest interest rate first
and then gradually loans with lower interest
rates. This frees up an increasing amount of
income you can use to pay back lower-interest
loans. Like in the previous case, you will have
to cut non-essential costs or find a bit of
extra income to pay more than the minimum on your
highest-interest loan. As you pay off your first
loan, you will continue to make minimum payments
on all other debts. When It Makes Sense To Use
The Debt Avalanche Method You have multiple
loans with various interest rates. The total
principal you owe is low.
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Taking out a new personal loan to refinance your
current one is a great way to get out of debt
faster. This option is convenient when you can
obtain a reduced interest rate and lower fees
than what you are paying right now. This way,
you could pay your loan back sooner by making the
same monthly payments you are making now. For
example, if you currently owe 25,000 on an
existing loan with an interest rate of 14, it
will take 40 months to pay it off with a monthly
debt payment of 800. But if you can take out a
new loan with an 8 interest rate, it will take
you four months less with the same exact monthly
payment.
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