5 Tips for Getting Out of Debt Quicker
At some point in your life, chances are you’re going to be buried under a mountain of debt—credit card bills, car payments, mortgage or rent, student loans, and a seemingly endless list of other monthly bills. Have you ever stopped to think that having debt is like anti-saving?
What if you didn’t have any debt? Imagine: No more skyrocketing credit card balances. No more sleepless nights. No more calls or letters from creditors or collection companies. Nirvana.
Chances are, however, that you probably think getting out of debt is impossible. That’s just not the case. Granted, it won’t be easy and you’ll have to make some sacrifices. But the bottom line is that you can live debt-free. Although the specific get-out-of debt methods that work for you might not work for your neighbor, these five tips can help you—and your neighbor—get out of debt quicker:
1. Create a Spending Plan—aka Budget: Solving your debt problem starts with establishing an itemized accounting of your income and expenses. You can use personal finance tools or set up your own Excel spreadsheet, but you need a budget to rein in your spending. Figure out how much money you make and decide how you want to spend it each month, before you actually spend it. Build in a little flexibility in case life throws you a curve ball.
2. Cut Costs: Once you’ve figured out your budget, take a look at where you’re spending your money and determine if you can reduce that spending. Instead of eating out eight times a month, cut it back to once or twice. Eliminate non-essential spending. You might want cable TV, but you don’t need it. Rather than going to a movie theater where a night out with your family could run you $60 or more, take a trip to your local library where you can typically check out movies for free (some libraries might charge a dollar). Pop some popcorn and have a movie night at home. Then, you can put all the money you save each month toward paying off your debt.[caption id="attachment_660983" align="aligncenter" width="640"] Source: Thinkstock[/caption]
3. Don’t Increase Your Debt: This sounds like a no-brainer. The reality is, if you’re in debt, you might start thinking about getting a new credit card—or using an old one to buy more stuff—to take the edge off your financial situation. But that’s not the answer. You want to slash your debt, not add to it. So don’t sign up for a new card. And once you’ve paid off a credit card, cut it up or freeze it. That way, you’ll have time to contemplate any potential purchases while the card thaws out. Buying a new car or a home while you’re trying to get out of debt is never a good idea, either.
4. Pay More Than the Minimum: You should always pay more than your minimum payments. Paying just a few extra dollars per month can help you pay down credit card debt and save big on interest, according to Bank of America. Even paying an additional $10 every month can help you pay off your balance more quickly because you’ll owe less in interest charges in the future. You should plan on paying as much as you can afford over the minimum payment each month toward your credit card balances. The same goes for other debts like car loans or student loans—even your mortgage payments.
5. Lower Your Interest Rates: One way to knock down your credit card balances fast is to negotiate a lower interest rate. With a lower interest rate, more of your hard-earned cash will be going to pay off your principal every month. So pick up the phone and call your card issuers. You just might be able to get a better deal, but you won’t know if you don’t try.
Written by Linda Rosencrance. The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. Past performance is not indicative of future results.