Paying off debt faster means fewer interest charges, access to better credit, more money in your wallet and financial freedom. But paying down debts fast is a multi-pronged effort requiring planning and discipline.
We’ve identified some of the best ways to pay off debt faster, from spending patterns to the frequency of payments.
Commit to some of these strategies, and you will get out of debt faster.
Work out your budget
If you don’t know where the money is going, you probably spend too much. Making a budget to pay off debt can help you identify where to cut unnecessary costs and free up money to repay debt.
Carefully examine your expenses, such as rent/mortgage, groceries and utilities, and don’t buy anything but the essentials. The 50/30/20 budget rule provides a good template for budgeting; use our calculator to figure out your budget.
Once you start to budget, you’ll be able to spend less on things that aren’t necessities and use this money to pay down your debt.
Consider using a budgeting app to analyze where you spend most of your money and identify areas where you can cut back, freeing up cash to spend on other things.
You can only do so much with your budget, but if you’re trying to pay off debt quickly, you must get the basics right.
Cut your spending
When it comes to paying off debt, cutting back on spending goes in tandem with budgeting. Look at every dollar you spend every month and tighten your belt until you pay off your debt.
Expensive nights out, restaurants, alcohol, clothes and holidays might have to take a back seat for a while. Consider reducing your energy consumption, cancelling some streaming services and spending less on takeout.
Some other ways to reduce your spending:
- Try a no-spend challenge or have a no-spend day every week.
- Renegotiate your bills or downgrade your service plan.
- Submit meter readings online or request a smart meter to reduce your energy bill.
- Call service providers and seek a temporary discount as a result of financial hardship.
Check out our guide on how to save money for more ideas.
Save on groceries
Grocery prices are rising faster than your paycheque, so finding ways to reduce your grocery bill is a must if you want to pay off your debt faster.
Save money on your groceries using the following tips:
- Stock up on sales items.
- Check the grocery flyer for the best deals.
- Don’t use food delivery apps.
- Use cheaper store brands instead of big brand names.
- Look for items with the ‘Enjoy Tonight’ sticker and freeze them.
- Ask the store to discount meat near the expiry date.
- Use bulk food stores and dollar stores.
- Reduce meat consumption.
- Buy imperfect produce for a discount.
- Shop at multiple stores to find the best deals.
Set a realistic timeline
Once you’ve created your monthly budget and figured out how much debt you owe, you can calculate how long it will take to be debt free.
The more money you can shift to paying your debts, the less interest you will pay on your balances. But don’t set unrealistic goals; it could take months or even years, but it’s worth it in the long run.
Pay high-interest debts first
To pay off your debt faster and save money on interest payments, use the debt avalanche method to pay off debt with the highest interest rate first.
Put all your effort into paying that debt, then move on to the next debt with the highest interest rate. You must make the minimum payment for your other debts.
The other more expensive option is to try the debt snowball method. This involves using any extra money to pay smaller debts first and then rolling on to the next smallest debt while making minimum payments toward your other debts.
This method can help motivate you to clear your debts, but you’ll pay more interest over time because you are not prioritizing the larger debts.
Pay more than the minimum
Paying more than the minimum balance every month can speed up debt repayment. If you make larger repayments towards your credit card loan or line of credit, you’ll pay off the debt faster and pay less total interest. It’s also a great way to boost your credit score.
Pay as much as you can towards your credit card. If you only make the minimum monthly payment, you’ll pay a lot more interest, and it could take years to clear the debt.
Your minimum payment mainly covers the interest charges rather than lowering the amount you owe. If you can’t make a payment, contact your creditors and ask for more time to pay.
Pay twice a month
Paying your credit cards and loans twice a month lets you save money on interest and pay off the debt in half the time.
In addition, you will improve your credit score as you make on-time payments and lower your credit utilization ratio.
Credit utilization is the percentage of your used credit from your total limit and has the second-highest effect on your credit score.
Automate your debt repayment
It’s easy to forget about bills, and many of us struggle to repay debts on time. Automating your monthly payments via pre-authorized debit or recurring payments ensures payments are made on time without service interruption.
However, be aware that these methods can drain your account for any amount due, so regularly check your account to ensure the amounts are correct. Also, it might not work for you if you have an uneven or irregular cash flow.
Add overdraft protection to avoid NSF fees and cover transactions when your balance is low on your chequing account. Use balance alerts to notify you when your account balance is low.
Earn some extra income
Cut back as much as you can and look at ways to make extra income, which you can put towards your debt to speed up your repayments.
There are many ways to make some supplemental income, such as:
- Negotiating a raise or earning a commission
- Working extra shifts
- Adding a part-time job
- Freelancing on Upwork or Fiverr
- Driving for Uber or Lyft
- Helping people via TaskRabbit
- Renting a spare room on Airbnb
- Starting a small business or blog on the side
- Selling stuff on eBay
- Making cash for taking surveys
- Money-making apps like Swagbucks
- Cashback apps.
Break up with your credit card
Research has shown that people spend more when paying with a credit card than cash. This is partly due to the time gap between the purchase and when payment is due, making people feel like the cost is not as important.
Credit card debt can unexpectedly creep up on you and be difficult to shake, so stop using them. You’ll get out of the cycle of credit card debt, lower the balance and improve your credit score as you do.
If you have a good credit score, you might benefit from a balance transfer credit card. This lets you move your existing credit card balance to a new card with a lower interest rate, allowing you to pay off your debt faster.
If it’s a promotional interest rate, find out when it ends to determine how long you have to pay the balance.
Consider debt relief
Sometimes, seeking debt relief is the fastest way to get out of debt. If your debts are out of control, there are many debt relief options available.
Non-profit credit counselling agencies: For help with debt problems, budgeting and credit.
Debt consolidation loan: Combine your debts into one loan with a lower interest rate, reducing your monthly repayments.
Consumer proposal: Repay what you can afford and stop legal action.
Bankruptcy: This might be the best option if you have little or no income.
Now you know how to pay off debt faster
Implement some of these strategies to pay off debt quickly. The sooner you face your debt problems, the faster you can pay them off.
If you need advice on how to pay off debt fast, get free advice from a Licensed Insolvency Trustee.
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