Debt can be a useful tool when used responsibly, but the end goal is always to keep debts minimal and get out of debt when you can.
There are many good reasons to get into debt, like buying a house to live in, buying a car to get yourself to work, or paying for tuition for higher education. But it's still nice to learn how to get out of debt fast, especially if you want to practice debt free living. Maintaining a low debt to income ratio also helps build up your credit score and a debt free lifestyle can be stress free and fulfilling.
There are many debt management strategies out there and each has its own pros and cons. Some will help you learn how to get out of debt fast, others will help you stay free from debt all together, and others will help you manage types of debt to your advantage.
The debt snowball method is for paying down debts. It involves paying off the smallest loans first and working your way up to paying off the debts with the highest amounts.
This method is great for boosting your confidence when tackling debts and giving you smaller wins sooner to help keep you motivated.
The debt avalanche method, also known as the stacking method, is for paying down your debts. It involves paying off the debts with the highest interest rates first and the debts with the lowest interest rates last.
This method is great way to reach more of your savings goals because the highest interest rates will cost you the most the longer they remain unpaid off. The more you save the more you can put toward emergency savings and high yield savings accounts with an advantageous annual percentage yield (APY).
Debt relief programs help reorganize and make plans around your debt, usually to relieve or forgive the debt partially or in full. This might take the form of lowering the principal amount owed, lowering the interest rate, extending the loan term to provide more time for repayment, and more.
This method is great when the borrower has limited options and a debt to income ratio that's too high.
Debt consolidation loans take all the debt you’ve accumulated on multiple accounts and combines them into one account and one monthly payment with one interest rate.
This method is great for getting you one interest rate, one minimum payment, and one credit account instead of multiple ones compounding on top of each other.
Once you have a debt strategy in mind, you can start gathering the details of your plan. The best way to do this is to make 4 lists, a list of all your debts, a list of all your expenses, a list of all your income, a list of all your accounts and minimum payments, and a list of all your interest rates. This will help you see all the money you have coming in and out of your accounts.
These lists will help you see all the details of your personal finances. You'll see your high interest rates next to your low interest rates, you'll see your credit card balances or personal loan amount next to your savings account balance and your emergency fund balance. You'll see what types of credit you owe and the reasons why.
Extra Tip: Make a note of any prepayment penalties associated with your credit accounts. Balance transfers or early repayment might not be the best idea for accounts that have high prepayment penalties.
Look for ways to reduce expenses. The less you spend, the more you'll have to put toward your debt payoff plans. Reduce expenses by eliminating what you can and making economic substitutions to save money on the things you can't eliminate.
Increasing income so you have more money coming in each month to go toward credit card debts, car loan payments, student loan payments, and essential expenses. Making more money will allow you to also increase your loan payments and will allow you to pay off debts faster.
Sometimes the key to getting out of debt is very simple—you might just need a better budget. Sticking to a budget is especially important when you're trying to pay off debts so you can turn to living a debt free life.
You could use an envelope system to help you stop overspending or you could use a budgeting app. Budgeting apps can link to your existing financial accounts, so you don't have to switch to cash to organize your expenses and debt payments.
Use debts responsibly when you need to, but always include those debts in your budgeting plans. This will help you be proactive about debts so they don't get out of hand and weigh you down too much.
