Paying off 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.
By: Hitesh Khan/
Here are some strategies to think about if you are thinking of paying off debt faster.
Tips for paying off debt faster
1. Pay more than the minimum
Pay off your debt and save on interest by paying more than the minimum every month. For example, if you have a $10,000 loan with a 7.00% annual percentage rate, and you paid $198 a month, you’d be able to pay off your debt in 5 years. But if you were to increase your payment by just $40 a month, you could pay off your debt in 4 years, save $376 in interest payments and be debt-free a year earlier.1
2. Pay more than once a month
Pay your credit card bills more than the required once per month. This may make it easier to stay on track of how much you owe. Paying your credit card bill regularly may also lower your balance/utilization ratio. The credit utilization ratio is the percentage of your total available credit that is currently being used. The utilization ratio is one of the components used by credit reporting agencies to calculate your credit score.
3. Pay off your most expensive loan first
Your most expensive loan is the loan with the highest interest rate. By paying it off first, you’re reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost.
4. Consider the snowball method of paying off debt first
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.
5. Keep track of bills and pay them in less time
Stay on top of your debt by bill reminders and Online Bill Pay. Simply schedule the amounts you want to pay and when you want to pay them. You can also receive eBills from payees offering electronic billing.
6. Shorten the length of your loan for paying off debt faster
Refinancing your debt to a shorter term may help you pay it off faster and save on the total cost of borrowing. With the same interest rate and shorter term, you won’t pay as much total interest over the life of the loan. Remember, shortening the term of your loan could increase your monthly payments.
7. Consolidate multiple loans for paying off debt faster
Loan consolidation may help you repay debt faster by combining several high-interest rate loans or credit card balances into one new loan ideally with a lower interest rate. When people think of debt repayment, the first thing that comes to most people’s minds is getting a large debt consolidation loan and paying everything off with that. The problem is, even with a large debt consolidation loan, you are still left with debt.
But still there are ways to borrow, but before you do that and consider alternate debt repayment ways, you should first ask yourself is there another way? You need to keep enough cash for three to six months of emergency money, but if by chance there is more, think about using that. You should also think if you have assets you can use? You may have some savings bonds, or some stock options, or an inheritance.
However, think carefully before you use long-term assets as alternate debt repayment options, as you may need this money in retirement. Thinking hard if you are making payments on things you don’t really need is important when considering debt repayment. Questions like ‘do I need the car’, and “do I need that Starhub TV” must all be considered, and you must be willing to get rid of the things and plans which are not really necessary.
If you do decide to borrow to deal with debt repayment, there are a number of different kinds of loans, which comes with the risks associated with them. You can’t borrow money without risk.
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