How to Pay Off Debts Fast
May 20, 2015 | Posted by: Calum Ross
Are you up to your ears in debt? If you’re financially disciplined and have a plan, there are ways to pay off your debt sooner. By only paying the minimum on your outstanding debt, especially credit cards, it could take you year s and cost you thousands in interest. Two popular debt repayment strategies include debt stacking and the snowball method.
1. Pay Above the Minimum Payment
If you want to reach debt freedom sooner, pay more than the minimum payment. By only making the minimum payment on your credit card each month, it can take you forever and a day to pay off your balance in full. To pay off your debt faster, pay the highest amount you can accord. If you can afford to plunk down an extra $100 a month, it will help a lot long-term.
2. Debt Reduction Strategy #1: Debt Stacking
A popular way to pay off your debt is debt stacking. With debt stacking, you start by paying down the outstanding balance with the highest interest rate. Continue to make the minimum payment your other outstanding debt to avoid going into default. Once you’ve repaid your most costly debt, repay the next costly debt and so on until your debt is repaid in full. The debt stacking is a good strategy because it minimizes the amount of interest you’ll pay, since you’re paying off the most costly debt first.
Debt stacking is a great way to rid yourself of high-interest debt that result in debt never really decreasing. With debt stacking, it’s important to stay motivated. The downside to debt stacking is that it may seem like it’s taking forever and a day to pay off. This is especially true if the debt with the highest interest rate also has the highest balance.
3. Debt Reduction Strategy #2: Snowball Method
Another popular debt repayment strategy is the snowball method. With the snowball method, start by repaying the debt with the lowest balance, while continue to pay the minimum balance on all your other outstanding debt to avoid going into default. It’s called the snowball method because similar to rolling a snowball down a hill, as your debt is repaid you’ll gain momentum as you get closer to debt freedom.
The snowball method works best for some people because it’s simple to see your progress when you rid yourself of one credit card debt after another. This method is self-motivating because it helps people feel like they’re making progress on paying off their debts.
While the snowball method can be a motivating way to repay debt, it means your highest interest debt could continue to cost you an arm and a leg if it isn’t also your lowest balance. By only paying the minimum balance on the other types of debt, a lot of interest can adds up, including the amount of interest paid on high debts.
With your high-interest debt taken care of, you can concentrate on paying down lower interest rate debt like your credit card.