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Being in debt can be draining both financially and mentally. Especially if you are facing high interest debt, like different types of debt. credit card debt, You may find yourself in a spiral situation where your balance increases faster than the interest you can pay back. And in this inflationary environment, debt has become all too common.
According to , between the second and third quarters of 2023 alone, U.S. credit card debt increased by $48 billion to $1.8 trillion, an increase of 4.7% on a quarterly basis. Federal Reserve Bank of New York. Overall debt delinquency rates also rose in the third quarter of 2023, according to research from the New York Fed.
Not all debt is necessarily bad, such as when you take out a low-interest mortgage. It may not be in your interest to pay it back immediately, such as whether you can get a better return by investing or just earning interest. high yield savings account Money that would otherwise be used to pay off the house. But if you have high-interest debt and the longer you delay repayments, the greater your losses, you’ll want to address this situation urgently.
But remember, even if you set aggressive goals, you can reach them quickly. repay a debtit can still be a long process.
“People who wave a magic wand and say, ‘Get rid of your debt quickly,’ usually have some ulterior motive. For many of us, debt is a problem that has built up over a long period of time, so it’s hard to get out of debt. It takes time,” said Luis Andino, founder and CEO of debt management platform Ditch.
Still, if you’re serious about getting out of debt, you may be able to get out of debt faster than if you just paid the minimum amount, for example. To learn more, start by exploring some debt relief options here.
Experts tell us how to get out of debt quickly
If you want to pay off your debt in a reasonable amount of time, consider these four steps. Please note that some of these steps take somewhat different approaches and incorporate different philosophies, so you may not be able to do all four, but you can choose the steps that seem best for you. please.
improve cash flow
In order to get out of debt, you actually need funds to pay it back. No matter what the interest rate is, or even if your lender agrees to forgive a portion of your balance, it may not be the entire balance, but you’ll need more money to get it back to zero.
“If you have a limited budget, there are generally two ways to pay down your debt: increase your income or reduce your expenses. Ultimately, you can either free up capital to allocate to interest-bearing debt or generate new capital. ,” says Andino. “This means that for most people, the quickest way to pay off debt is to drastically cut back on spending, spend only on essentials, and focus all excess income on debt.”
Sell your car to reduce restaurant expenses and pay extra Income from side job There are all possible ways to improve cash flow.
Learn more about how to get out of debt.
Prioritize the right debt
Some people prefer to pay off their debts using the debt snowball method. With this method, you start with the account with the lowest balance and pay it off first to build momentum. From there, your efforts will snowball into tackling your biggest debt. But from a mathematical perspective, it’s generally not the quickest way to get out of debt.
“Often, people let high-interest debt accrue interest while paying off lower-interest debt, reducing the impact of payments on their overall balance,” says Andino. .
Debt psychology may be at play here, as some people are looking for a quick win. But if you can stick to the debt avalanche method of paying off your balance at the highest interest rate first and gradually lowering your interest rate, you can usually save more money overall. And since it takes less money to pay off your debt this way, you can get out of debt faster.
However, be aware that a small balance with a high interest rate may be less important than a much larger balance with a slightly lower interest rate, especially if you are facing problems such as being over your credit limit. please. You’ll need to do the math to see what works for your situation.
“Visibility into your money is important here; it’s important to understand not only where you spend it, but also how to best allocate that payment,” Andino adds.
break the cycle
One of the problems with getting out of debt quickly is that if you don’t break the cycle of not having a safety net, you can end up in debt again.
“We want to make sure we break the cycle of debt. We often get out of debt by throwing everything we have into debt, but we have no savings. Then something goes wrong and we end up in debt again. This means we need to ‘The goal is to save, then pay off debt, and stop this cycle,’ says Gina Knox Coaching CEO and Financial Coach. says Gina Knox.
Even if you don’t go into debt because of overspending, such as if you were simply trying to pay off student loans, learning how to save money can be helpful.
“Practice your savings skills,” says Knox, starting by building up your emergency savings. Minimum emergency savings will vary depending on your situation, but in general, it’s important to have several months’ worth of expenses saved, she added.
Once that’s established, “start paying off your debt in lump sums when you can and continue making the minimum payments,” says Knox.
Use debt consolidation wisely
Finally, you can also use Debt consolidation To get out of debt faster. By bringing out new things, debt consolidation loan You may be able to lower your overall interest rate to cover your old debt, thereby reducing the cost and time it takes to become debt-free.
However, it is still important to break the cycle of debt and not be left in any form of debt. debt forgiveness Resetting your credit limit may lead to new debt problems, such as more debt.
“Used properly by the right people, they can be a powerful tool, but without addressing the underlying issues, debt consolidation loans will only free up revolving trade lines and create more debt in the long run. ” said Andino.
He said people often end up taking out consolidation loans along with maxed-out credit cards. Therefore, you should check whether you can qualify for a new loan or loans. Credit card balance transfer Instead of digging a deeper hole, practice better money habits in a timely manner.
Find out how debt consolidation can help you today.
conclusion
Getting out of debt, especially high-interest debt, is important for your financial future, and not having to continually pay interest can make your life easier. However, don’t jump at the first debt relief option that comes up. You need to assess your situation and think about what is best for you to sustainably pay off your debt and then stay out of debt.
“You’re going to have to evaluate the debt from a morally neutral standpoint,” Knox said. “Many of us get into a mental spiral and make quick decisions about debt. Instead, it’s important to stay calm and make decisions without emotion.”
