How To Pay Off Debt Fast And Save Money
By: Consumer Living
Tags: Financial Health, Save Money, Debt, Finances, Pay Off Debt

Is your out of control debt making it impossible for you to save money? You can pay off your debt and save some money by using simple strategies and tools that work in your favor.

medium.com/@consumerliving gathered the following information and tips to help you lower your debt quickly and create a permanent structure for your financial vitality.

How Much Debt Do You Have?

To improve your financial health, your first task is to know how much debt you have. This can get tricky, as some people misinterpret what debt actually is. Consider the following:

WARNING: Being exposed to the full amount of your debt can be overwhelming and may cause anxiety. Rest assured that you are not the first to be in debt, and you certainly will not be the last.

Expenses — Your daily, weekly, monthly, and annual expenses should NOT be included in your debt calculation. However, these expenses may influence how long it takes to repay your debt. Examples of expenses may include:

• Gas

• Food

• Dry Cleaning

• Power Bill

• Gas Bill

• Cell Phone/Mobile Service

• Water Bill

• Cable Bill**

• Auto Repair

• Insurance

• Childcare

• Home Security/Alarm System

• Medicine/Medical Supplies

• Household Supplies

• Entertainment

• Website Domain/Hosting

• Rent/Mortgage

Your expenses aren’t added into your debt because they are either necessary for your well-being, considered optional, and/or fluctuate in value. Expenses are payments that are not financed and can be controlled.

By controlling and subsequently reducing your expenses, you can free up significant amounts of money to apply towards your debt elimination. This includes refraining from purchasing items that you do not need.

Tip: Utility companies (power and gas) will often make fixed or flat rates available. These rates are based on your average monthly usage, and it is highly recommended to take advantage of these plans to avoid high fluctuations in these bills.

Tip: When it comes to your auto, renters, or homeowners insurance plan, shop the market. This industry, while regulated by federal and state guidelines, is exceptionally competitive. Some carriers will offer significant discounts for bundling multiple policies, organizational memberships, sponsored safety courses, etc.

Tip: Your mobile service provider should offer a variety of plans differing in services and costs. By reducing or limiting the amount of allowed data sharing per month, you may be able to dramatically reduce your phone bill. As well, avoid constant phone/device upgrades. Each time you upgrade your devices, the cost of the new equipment is added to your monthly statements.

** You can save money by limiting your cable service to internet access only. Movies, music, news stations, and television shows can be accessed or streamed on-demand or free on specific platforms.

Debt — Your debt includes money you have spent by utilizing a financial institution to guarantee the payment of such purchases based on your creditworthiness. The following should be calculated into the amount of debt you have:

• Credit Card Balance(s)

• Auto Financing Balance(s)

• Personal Loan Balance(s)

• Financed Furniture/Appliances

• Student Loan(s)

• Payday Loan(s)

• Home Equity Loan(s)

• IRS and/or Government Debt(s)

Debt, like those listed above, are common and very appealing when your finances don’t seem to be enough. For you to get them under control and paid off, you will first need to make a list of them. Order the list from the highest debt to the lowest debt. For example:

Note: For many, debt may seem overwhelming and embarrassing. This may lead some to avoid the necessary steps to recovery. Be assertive in how you approach your debt and plan your way out of it.

How Much Income Do You have?

Now that you have an idea of your debt, it’s time to get a clear view of your income. Make a list of all of your regular income sources. If any of these sources vary significantly from month to month, keep them separate from the monthly total. These will be used for a different purpose. Your list should look something like this:

Ultimately, the idea is to base your recovery on your consistent income. You cannot and should not plan for money that is not there or may not be earned.

If the money you make is not enough to get by, consider the following to supplement your income:

• Get a second job

• Drive for Uber or Lyft

• Choose an online marketplace and sell some old furniture or trinkets

• If you are artistic, make and sell some crafts, paintings, or pottery

• Start a lawn care service in your neighborhood

• Become a survey taker

• Babysit

• Dog sit

Keep in mind, when paying off debt, every dollar earned is vital to reducing the time this will take. This process may get tiresome and frustrating, but the payoff is tremendous and warrants your maximum effort.

How To Reduce Your Debt And Pay Your Bills

The following information and tips will help you get a handle on your situation by taking control of your finances and negotiating how you will reduce your debt:

Late Fees — The very first thing you must do to begin reducing your debt is to avoid late payments at all costs. Depending on the creditor or service provider, late fees can be a flat rate or a percentage of what you owe. Regardless, when you pay a late fee, that’s $35, $50, or $100, you are paying extra with absolutely no return benefit.

Tip: If you call the creditor or service provider before your due date, and you are not in the habit of paying late, they may reduce or waive the fee.

Payment Arrangements — Some utility companies and cell phone service providers allow their customers to make payment arrangements. These payment arrangements will typically give you a 14 to 20 day grace period to bring your account up to date.

Tip: While the time allowed for payment arrangements may vary, in most cases, you can only request this leniency before the bill is due.

Auto Financing — You may be surprised to discover how flexible lien holders may be. Many of these financing companies may offer the following:

• Skip a Payment (usually added to the back end of your contract)

• Hardship Program (reduced payments and interest for a specific number of months)

• Contract Rewrite (If you are far enough along in your payments to qualify, this extends your contract, lowers your payments, and typically preserves your APR)

• Refinancing (this is a new loan based on the value of the vehicle, what you owe, and your creditworthiness)

To benefit from any of the above, you will need to call your creditor to see what is available. You may be required to answer questions and/or fill out forms to prove and document your situation or hardship.

Credit Card Companies — The more you spend on credit cards, the more you owe in debt, and the bigger the payments get. To get your credit card debt under control, consider the following:

• Stop using your credit card(s)

• Make payments higher than the minimum payment whenever possible (more on this later)

• Make your payments on time

• Keep your contact and income information updated

If you can’t make your credit card payments due to financial constraints, medical, or unexpected expenses, most credit card companies offer hardship programs. Hardship programs may include:

• Reduced interest rates

• Lower, fixed payments

• Varied duration (6 months, 1 year, or until you reach a zero balance)

For many hardship programs, you may be required to have your payments automatically deducted from your checking account. Also, you will not be able to use the credit card while the program is in effect. Likewise, the credit card company may require the closure of the account once it is paid in full.

Tip: Start looking at credit cards as a way to cover emergency expenses like hospital bills, major vehicle repairs, immediate out of state travel, etc. Stop using your credit cards for non-essential items, small purchases, fast food, etc. By the time you get the card paid off, that 2 for $5 burger special could cost you more than $50.

Note: Your credit score is intensely impacted by the amount of credit card debt you possess versus your limit(s). As you are paying off your debt, you can follow the rise and fall of your credit scores for free at creditkarma.com. Scores are updated weekly, and you get to see the real-time results of your efforts.

How To Pay Off Your Debt

Saddle up! It’s time to plan your way out of debt. You can do this by using one of two methods (there are many other options available, but these are among the most effective to use):

Debt Snowball — In this method, you should only be concerned with the remaining balances of your debt and the minimum monthly payments. Follow these steps:

1. Order your debt from the smallest balance remaining to the highest balance.

2. Each month make the minimum monthly payment on all of your debt, except the one with the lowest balance.

3. Focus all of your energy on this portion of your debt. If your minimum monthly payment is $50 for a personal loan, add another $50 to pay $100 per month until it is paid off.

4. Once the personal loan is paid, move to the next. If the minimum monthly payment is $70 for a credit card, add the $100 you were paying on the personal loan to total $170 per month. Continue making these monthly payments until the credit card is paid off.

5. Acknowledge what you have accomplished! Two of your monthly burdens are gone.

6. Now you are gaining substantial traction. For the next debt, let’s say your minimum monthly payment is $180 on another credit card, add the $170 from the previous credit card payments. You are now paying $350 per month to wipe this debt out.

7. Now, let’s say your auto loan has a minimum monthly payment of $320. Add the $350 you were paying on the 2nd credit card, and you are now paying $670 per month to eliminate this debt.

8. Keep repeating this method until you are debt-free.

This method is ideal for those with a very tight budget. The variable income that you listed earlier can be used to boost the amounts you are paying in each phase of the debt snowball. Or as a “bonus” to treat yourself and your loved ones to something special.

Just because you are in debt doesn’t mean you must stop living. When you start genuinely managing your money, you will become aware of the negative impact your spending habits have caused. Thus, you should also become more mindful of your spending moving forward.

Watch this video to see how the debt snowball works.

Debt Avalanche — In this method, the order of the debt you will tackle is defined by the highest to lowest APR (interest rate) regardless of the amount of the debt. Follow these steps:

Similar to the snowball method, you will make all of the minimum monthly payments except for the one with the highest APR

1. Order your debt from the highest APR to the lowest APR.

2. Each month make the minimum monthly payment on all of your debt, except the one with the highest APR.

3. Focus all of your energy on this portion of your debt. If your minimum monthly payment is $200 for a credit card, add another $100 to pay $300 per month until it is paid off.

4. Once the credit card is paid, move to the next. If the minimum monthly payment is $100 for a second credit card, add the $300 you were paying on the first credit card to total $400 per month. Continue making these monthly payments until the second credit card is paid off.

5. Acknowledge yourself! You just scored a knockout punch on your highest APR debts.

6. For the next debt, let’s say your minimum monthly payment is $320 on an auto loan. Add the $400 from the second credit card payments. You are now paying $720 per month to wipe this debt out.

7. Keep repeating this method until you are debt-free.

In this method, you can save a substantial amount of money by eliminating your highest interest rate debt first. One of the most rewarding outcomes of either approach is knowing that your net worth rises as your debt decreases.

Tip: If you don’t know the APR on a credit card or loan, call the financial institution and ask them, “What is the APR on my credit card?” Make sure you get the annual percentage. You may have varying APRs for different types of purchases (these do not matter, only the annual matters for our purpose).

Watch this video to see how the debt avalanche compares to the debt snowball.

Managing Your Money And Ending The Vicious Debt Cycle

Getting into debt is easy. Our “consumer” culture makes it easy to spend money, get credit, spend more money, finance a car, take out loans, etc.

Getting out of debt requires you to change your spending habits, swallow your pride, and adopt a strategy. Once you settle on a plan, hold yourself to it. There is no magic involved in either of the methods above. It is pure mathematics combined with your diligence.

The tips and information in this article are intended to help you overcome your financial difficulties. It doesn’t matter how you arrived at this point, what matters is how you interact with your lenders and pay them off.

Simply put: Manage the money.

Debt Elimination

In this article, you discovered information and tips to help you deal with your bills and your debt, lower and eliminate your monthly payments, and regain your financial fortitude.

By getting your debt in order and paying it off, you are saving money that would otherwise be spent on exorbitant interest rates and ever-increasing balances.

Ignoring your debt is the fastest route to tank your credit score and end up with possible legal proceedings brought against you by your lenders. Ask yourself: “Can I afford to have missed payments and defaulted loans on my credit history for seven years?”

Sources:

www.nerdwallet.com/blog/finance/7-tips-for-paying-off-debt-from-people-who-did-it/

www.thebalance.com/start-getting-out-of-debt-960852

bankrate.com/finance/debt/ways-to-get-out-of-debt-1.aspx

creditkarma.com/advice/i/credit-karma-guide-debt/