A lot of people have debt. And many Americans would love a way to pay that debt off faster.
Paying off debt fast can feel like a daunting challenge, but with a systematic process in place and the right tools at your disposal, you may be out of debt sooner than you expect.
How to pay off debt fast
First, get the full picture of what you owe. Gather all your debts (credit cards, loans, etc.) and list out the following to organize your debt situation:
- How much you owe on loans, large bills (i.e., medical) and credit cards
- The amount of interest you are paying
- Your annual percentage rate
- Your minimum monthly payments
Once you have the scope of your debt in perspective, create a goal or even a set of goals to reach. For example, you could work toward paying less into debt and more into retirement within a few years. Next, consider different strategies for paying off your debt. Then consider the tools you can utilize.
- Loans for debt consolidation. Outside of a credit card balance transfer, one increasingly popular way to pay off debt is through debt consolidation, particularly if you’re wondering how to pay off credit card debt with a high interest rate. Loans for debt consolidation can allow you to pay off your creditors directly and then repay the loan with a fixed monthly payment and interest rate. Curious how much time and money this could save you? Use Discover’s debt consolidation calculator to find out.
- Debt settlement. This involves having a third party company step in and negotiate a settlement with your credit card companies. Having someone else help you solve your debt problems can feel like an attractive option, but it comes with a share of risks. You may be incurring additional fees with the debt settlement company that dampen the benefits of the service. There is also the possibility of getting caught up in scams. If you’re considering this option, it’s in your best interest to protect yourself by researching the debt relief company and understanding what your rights are as a customer.
- Home equity loans. A home equity loan may come with a lower rate than you’re paying on a high interest credit card balance but it requires putting your home up as collateral to secure the loan. Because home equity loans tend to be for larger amounts, this could be a good option if you’re also undertaking a large project such as a home addition. For instance, at Discover, we offer home equity loans between $35,000 and $150,000, while our personal loans are for between $2,500 and $35,000 and they’re unsecured.
- 401(k) loan. Some employers will allow you to borrow money from your 401(k) retirement savings plan. While this may offer an attractive interest rate, you may want to consider a personal loan versus a 401(k) loan. There may be drawbacks like missing out on gains or losing an employer match that may be deal breakers for you.
Other ways to cope with debt
We usually think of our monthly bills as rigid payment schedules that our services depend on. But in today’s hyper-competitive environment, many vendors, such as cable and phone companies, are willing to work with you to keep your business. Check and see if you could get a better deal to reduce your monthly payments on certain bills. You could also consider other ways to spend less money. You may also be able to find an online savings account that could pay you more in interest.
Another way to have less debt is to generate more income. If a side job isn’t in the cards, there may be extra money to be made by selling items you no longer need or use, either online or through a garage sale. If you have stuff you’re willing to part with and you’re open to discount pricing, you could get yourself some cash with just a little organization and presentation.
Hold yourself accountable
While there are many methods for combating debt, you should always hold yourself accountable for these expenses. It’s important to set concrete deadlines and payment amounts. A personal loan can be ideal for setting goals and sticking to them because it has a fixed term and set monthly payments. You know exactly when you will pay off the loan if you make all your payments on time. Depending on your loan term and how much you pay above the minimum payment on your loan and any other debt, a personal loan could help reduce your debt burden sooner.
It can be difficult to talk openly about issues related to money, but maybe you can tap a close friend or family member as your accountability partner in your debt payoff plan. This may compel you to follow through more rigorously and can also serve as a source of moral support. Make your debt relief a community effort. And don’t forget to celebrate as you reach your goals—a walk or coffee with your accountability partner could be just the encouragement you need to move on to your next financial goal.
Paying off debt won’t necessarily be easy, but if you stick with it, you may find you can make a lot of progress in a short amount of time.
With our debt consolidation calculator, you can see the potential savings of consolidating higher interest debt with a loan from Discover.