How to Pay-Off Debt Fast
Many Americans hear about the “debt bubble”: the country’s debt, student loan debt, and credit card debt. They may have a basic understanding of what debt is, but there are key concepts that many Americans miss — like how interest rates work. It’s important that you understand the concept of interest rates. As the saying goes, “Those who understand interest rates, earn it. Those who don’t, pay it."
How Interest Rates Work
Let’s start with the basics. At its core, an interest rate is the amount of money it will cost you for the convenience of borrowing someone else’s money. Interest rates vary depending on how much money you’ll be borrowing, what you’re borrowing the money for, and other factors.
If you have debt with an interest rate over six percent, there's a really good chance you’re throwing money out the window and going backward. So how do you stop the cycle? If you’re asking yourself how to pay off debt fast with low income, how to pay off $30,000 in credit card debt, or anything else having to do with debt, we have the solution. We’ll teach you how to pay off debt fast so you can start putting your money toward savings and other meaningful purchases.
One of the most obvious ways to pay down debt quickly is also one of the hardest. If you’re wondering how to pay off debt with low income, reducing your spending may not always be plausible. But if you have some flexibility in your budget, reducing spending will free up your hard-earned money to go toward outstanding loans quickly.
Here are some ideas on how to trim your budget:
Try to cut down on the biggest expenses first. Can you move into a smaller home, drive a less expensive car, or cut down on other monthly bills? These basic needs make a huge impact on your monthly budget.
Do you have a large food budget? Think about cutting back on eating out to easily reduce your monthly spending.
What are some of the excessive purchases you make each month? Do you have monthly subscriptions that you could do without? Cancel any respective charges you don’t absolutely need.
Stop Using Credit Cards
Credit card debt is a major setback for many Americans. Avoid the pitfalls by not using credit cards altogether. When you’re only using a debit card, you won’t be tempted to spend the money you don’t have. Then you can focus on paying down loans and start using the credit card again (in a responsible way) once the debt is gone.
Use Retirement Funds
Using retirement funds to pay off debt is not always the best decision. But if you’re a working professional and have an employer-sponsored retirement plan, this option definitely makes a lot of sense. The interest rates you’re paying on things like credit card debt or other high-interest debts could be greater than the amount you’re saving on your retirement fund. So paying down the debt first will rid you of your obligations and allow you to start saving for retirement again once the debt is gone.
Average American Household Debt: $5,700. Average for balance-carrying households: $16,048
Having a high utilization rate on your credit card debt can bring down your credit score.
A low credit score may result may with a loan with high interest rate.
Paying down credit card will improve your credit score.
Did you know?:
"Those who understand interest rates, earn it. Those who don’t, pay it."
Image above: Our educators will show you how you can save money with a DSR.