Debts can be a scary thing, and getting out of them may seem challenging to achieve without hustle.
No matter who, nobody wants to stay trapped in the cycle of debt. All one has to do is follow a few steps to keep up with the monthly bills and save a few to pay off the debt.
Along with this, there are a few more essential measures to follow that will help you settle your debts in less time.
Fortunately, there are plenty of ways to get waive off the debt, like paying more than the minimum each month, refinancing your accounts, using financial windfalls to eliminate your debt balance, etc.
You can use any strategy as per your situation and goals to waive off the debt.
What’s The Average Debt Per Person?
The average American has $90,460 in debt, including all types of debts ranging from credit cards to personal loans, and student and mortgage loans.
Average Debt balance by age group:
|Age Group||Average Debt Load|
|Gen Z (18-24)||$20,803|
|Gen X (41-56)||$146,164|
|Baby Boomers (57-75)||$95,607|
|Silent Generation (76+)||$39,859|
Steps To Get Out Of The Debt
A few ways are mentioned and explained below to help you pay off your debt systematically.
Pay More Than Minimum
Look at your expenses for a specific time, see what costs you can cut through, and keep them to pay off the debt. If you’ve to pay a particular amount on the payment day, pay a little extra that you saved after managing the expenses. Paying a little more than the minimum will save you on interest.
Let’s assume you have some balance on a credit card with an Annual Percentage Rate and hold some minimum payment; if you make minimum payments of less amount, it’ll take around six months to pay off the debt, and you’ll pay more interest in total. In another case, if you pay more than the minimum monthly, you can clear the debt in less than three months and pay less interest compared to the previous scenario. The second method can save you more money and eliminate the tension of clearing off the debt earlier and more accessible.
Refinancing debt is done by the borrower by replacing their current debt with one that provides more favorable terms. The lower interest rate saves hundreds in interest when you take out a new loan to pay off the existing debt. The terms of the original loan are then replaced with the new loan.
You can refinance auto, personal, student loans, and mortgages to repay your debt faster. You can do this step by taking a debt consolidation loan that comes with a lower interest rate than your existing debt. This step helps you get a lower interest rate and set loan terms that you can afford to finish off much faster.
Follow the Debt Snowball Method
The debt snowball method involves paying off debts in order from smallest to largest, regardless of the interest rates. You need to list your debt and arrange your debts in order from smallest to largest balance to pay the debt. You can choose to pay a little extra on the smallest debt, followed by doing the same for the remaining balances. Repeat this process until all your debts are paid off.
During this process, you create a snowball effect to pay off each debt, releasing more money for the next debt on your list. Following this step also keeps you motivated when you see more effective results.
Use Windfalls To Pay Off Debt
If you receive a windfall, such as an inheritance, bonus, or tax refund, use it for debt repayments rather than saving it in your bank account or spending it on yourself. This method can be a great way to accelerate your debt payoff plan. If the windfall is large enough, choose to repay the debt altogether or consider splitting it into smaller amounts to pay off high-interest debts. This will save you a lot of money in the long run by saving on a lot of interest.
In order to follow this method, is to stay disciplined and avoid using the windfall for other expenses such as a vacation or partying. Committing the windfall to debt repayment can help you get out of debt faster and improve your financial situation in the long run.
Re-examine your budget
If you’re struggling to pay off your debt, re-examining your budget can be a great way to find extra money to pay off the debt. You need to keep track of your expenses for a specific period to understand where your money is going. Based on that, create a budget of all the essential expenses you need to make and areas when you can cut back easily. All the non-essential expenses can be easily cut to save extra money. This money can be used to pay off debt more faster.
This process is continuous as you need to adjust your budget according to changes in your financial situation. By staying aware and making necessary changes in your budget, you can free up more money for debt repayment.
Debt Impacts On Your Life
Debts can leave a significant impact on one’s life, both financially and emotionally. The burden of making monthly payments and managing your debt can be overwhelming, thus causing a lot of financial stress. High debt levels can impact a credit score, making it quite difficult to secure loans or types of credit in the future. It also reduces your quality of life as you must cut back on expenses to pay off the debt early. Debts can also cause mental health issues as all this can cause stress till the time you don’t waive the remaining debts.
What To Do
It’s important to take crucial steps to manage your debt and think of possible ways to waive it off, as it will only lead to a better future for you. It may seem challenging at first, but if you know how to follow the steps mentioned above, you can quickly get a hand on it. All you have to do is be patient and start following the steps to get out of debt faster. This will improve your overall financial health and save you from impacting your life in the long run.