5 Ways to Pay Off Debt Faster

If you're dealing with piles of debt, you're not alone. Together, Americans have more than $17 trillion in household debt, an increase of $184 billion in the first quarter of 2024 alone. While debt is sometimes helpful, it can also keep you stuck. And the longer you hold onto your debt, the more it'll cost in interest. Paying off your debt can expand your budget and help you reach your financial goals in less time. If you're ready to pay off your debt fast, the following strategies can help.

If you're struggling to pay off debt or are curious about how taking on debt will affect your financial plans, talking to a financial advisor can help.

1. Reduce Your Interest

You can think of the interest on your debt as the cost of borrowing. The higher the interest rate, the more expensive it is to borrow. Reducing the interest on your debt can lower the total amount you owe and shorten the time it takes to become debt-free. There are several ways to do so, which include:

• Negotiate with Creditors : One of the most straightforward ways to reduce interest is to negotiate with your creditors. Many lenders are willing to lower interest rates for borrowers who are experiencing financial hardship, especially if you have a good payment history. Contact your creditors and explain your situation to see if they can lower your interest rate or modify your repayment terms.

• Use a Balance Transfer or Debt Consolidation Loan : Balance transfer credit cards and debt consolidation loans allow you to combine existing debts into a single payment.

• Refinance Existing Loans : Refinancing can help you lower your interest rates on various types of debt, including mortgages, auto loans and student loans. By refinancing, you take out a new loan with better terms to pay off the existing one.

2. Earn More Money

Earning more money can dramatically accelerate debt repayment. By increasing your salary , you can allocate more money toward your debt without refinancing or pinching pennies. Here are some ways to do just that:

• Take on a side job : One of the most accessible ways to earn extra income is by taking on a side job. This could be anything from freelance writing, graphic design or tutoring, to more traditional roles like bartending or retail work. Side jobs offer flexibility, and you can tailor them to fit around your schedule and primary employment.

• Ask for a raise : If you're performing well at your current job, consider asking for a raise. Research average salaries for your position, highlight your accomplishments and demonstrate the value you bring to the company. Even a small raise can make a significant difference over time when you apply those additional earnings to your debt.

• Find a higher-paying job : If you can't negotiate a raise and lack the time or capacity for a side job, the best course of action may be to find a higher-paying job. Before applying, update your resume, enhance your skills through education or certifications and keep an eye out for new opportunities

3. Cut Expenses

If earning more proves difficult, cutting expenses can help you free up more money to pay off debt . There are several effective strategies for cutting expenses that, over time, can make a major impact on your debt payoff timeline. Here are some tips to help you get started:

• Create a budget : Creating a detailed budget is the first step in identifying areas where you can cut fixed and variable expenses . You can see where your money goes and pinpoint unnecessary or excessive spending by tracking your income and spending.

• Lower your bills : Bills, including your mortgage or rent, utilities, cell phone and more, add up. In most cases, they're also not optional. However, there are ways to lower them and redirect some of that cash toward your debt. Shop around for better rates on things like insurance , internet and your cell phone.

• Reduce your spending : While bills are relatively fixed, other spending categories are more flexible. Where possible, find ways to cut down these costs and put those savings toward debt payoff . For example, focus on reducing food waste as a way to save on groceries.

4. Stop Borrowing

Avoiding taking out new debt is a helpful, if not necessary, strategy for paying off debt faster. When you continue to accrue debt through credit cards or loans, you not only increase the total amount you owe, but you also extend your debt payoff timeline. For example, credit cards can be a convenient tool, but they often come with exceedingly high interest rates. While you're working to pay off your debt, stop using credit cards completely. Instead, rely on cash or debit cards to ensure you're only spending money you have.

One of the reasons people continue to borrow is to cover unexpected expenses. Creating an emergency fund, however, can prevent you from needing to borrow when these situations arise.Aim to save three to six months’ worth of living expenses in a separate, easily accessible savings account. It may take time to fully fund your savings, but when an emergency pops up, you can cover the cost without having to take out additional debt.

5. Use Debt Relief Services

Debt relief services aim to help you manage, reduce or eliminate your debt. Typically, they come into play when you're struggling to pay off your debt on your own. There are several different types of debt relief services for you to choose from. For example, credit counseling involves working with a certified credit counselor, who guides debt payoff and budgeting. These counselors often work for nonprofit organizations and help you create a personalized plan to pay off debt.

Debt settlement is another option that involves negotiating with creditors to reduce the total amount of debt owed. With this strategy, debt settlement companies work on behalf of the debtor to reach an agreement with creditors. Once the two parties settle, the debtor makes a lump-sum payment or a series of payments to settle the debt for less than the full amount.

Finally, bankruptcy is a legal process that provides relief to individuals who cannot repay their debts. Bankruptcy can offer a fresh start, but it has long-term consequences and should be considered a last-resort option.

Bottom Line

Paying off debt fast can dramatically improve your financial situation, but it requires some planning and discipline. By reducing interest rates, earning more, cutting expenses, avoiding new debt and using debt relief services, you can pay off your debt faster and enjoy more financial freedom . While you may be able to pay off your debt on your own, don't hesitate to consult a financial advisor. These professionals can offer personalized advice and help you understand how new or existing debt impacts your overall financial plan.

Tips for Financial Planning

• Creating a long-term plan for your finances can exponentially increase your ability to reach your goals. A financial advisor is a professional with the expertise to be able to help you get there with your plan or to manage your investments on your behalf. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
• You can also take a look at your investment plan and see how your assets might grow over time with SmartAsset’s free investment calculator .

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