Paying off your debt faster may help you get a head start on your goals, whether it’s applying for new credit, saving on the cost of borrowing, or just reducing your debt. Here are some strategies to think about when considering repayment plans that could help you pay your debt off faster.
Figure out your budget to pay off debt
Getting a handle on your income and expenses can you help you figure out if you have any extra money to pay down your debt. Paying more than the minimum each month can speed up your payoff timeline.
While you’re focusing on debt payoff, work to build an emergency fund. Even a small one can prevent you from getting deeper into debt if an unexpected expense comes up.
Stop using your credit cards
Halting your debt from growing any larger can make it easier to manage. One way is to stop using your credit cards.
Not adding onto the balance while you’re paying down debt can also help improve your credit utilization — or the ratio of your debt balance to your available credit — which is a major factor in calculating your credit score. The lower your credit utilization, the better it reflects on your credit score.
Tackle high-interest debts with the avalanche method
Two popular and frequently debated debt repayment strategies are the debt snowball and the debt avalanche. With the debt snowball method, you pay off your debts from smallest to largest balance. Those who need quick wins to stay motivated may prefer this method.
It can be effective, but it isn’t the fastest and it may not not wipe out your highest-interest debts more quickly. If you want to pay off credit card debt speedily, use the avalanche method.
The debt avalanche has you pay off debts in order of interest rate, starting with the debt with the highest interest rate. You’ll pay the minimum on every debt except that highest-rate debt. Any extra money you have beyond what you need for the minimums will go to this one debt.
Once you pay off your highest-rate debt, you’ll tackle the debt with the next-highest rate. Using the debt avalanche method rather than the debt snowball means you’ll accrue less interest so you can pay off your debt faster while owing less in the long term.
Put extra money toward paying off your debts
The more money you can put toward your highest-interest debt each month, the quicker you’ll get out of debt.
Start by taking a look at your budget and current expenses. Many of these do not have much wiggle room, but you may be able to find ways to trim them. For instance, you might adjust your thermostat by a few degrees, plan meals around sales items in the weekly grocery flyer or shop for cheaper auto insurance.
Even if you can reduce some of your essential bills by just 5% to 10%, you’ll have that much more to use toward paying down debt. To cut some fat from your budget, consider some money-saving hacks.
Also, plan on any additional money you may receive going toward debt. Whether it’s a bonus at work or a rebate on your contact lenses, earmark it to use for debt repayment.
Limit unnecessary spending
Another way to find extra money for paying off debts is to cut unnecessary spending, also called discretionary spending. Any spending that isn’t essential is discretionary. Some discretionary spending is quite apparent: concert tickets, video games or spa visits. However, some spending may be harder to define.
Perhaps you consider one or two streaming services essential, but more than that — especially if you don’t use them daily — could be considered discretionary. You need to eat, but frequent eating out or ordering in is in fact nonessential spending. When avoiding discretionary spending becomes challenging or monotonous, remind yourself that it’s only temporary.