5 Tips to Get Out Of Debt Quickly
No one plans to fall into debt, but in the current economic environment, it is virtually impossible to live without borrowing. Despite having the most well thought out budgets, most household owners and business owners find themselves sinking deeper into debt.
The high cost of living in the backdrop of a slow global economy translates to shrinking incomes. This, in turn, forces people to borrow to meet emerging cash shortfalls. The main types of debt are a credit card, mortgages, auto loans, and student loans among others. If you are a household owner, you appreciate how crucial it is to get out of debt before the situation ruins your financial life.
This guide will help you appreciate how the debt trap can eventually lead to financial destitution. The goal is to help you pay off your debt quickly. This not only improves your quality of life but also allows you to access new lines of credit which can help you grow. Better still, you will have peace of mind as you won’t have to worry about the ballooning debt item in your budget.
American Debt Statistics
The American consumer debt today is worrying. A 2016 survey by the Value Penguin shows that the average debt for American households is $16,740 and 38.1% carry some credit card debt. U.S household debt has increased by 11% over the last 10years, and it is still growing.
A survey of consumer finances by the U.S. Federal Reserve puts the total U.S outstanding consumer debt at $12.58 trillion. The average American’s credit card debt is around $3,600. Surprisingly, all surveys indicate that those who cannot afford debt are the ones who have the most. This, in turn, leads to high default rates.
In essence, the debt cycle eventually leads to poverty. What starts as a minor debt issue will spiral to a point where households lose their assets. During the 2007/2008 recession, many families were forced to the streets due to spiraling debt.
How to Get out of Debt Quickly
Now that you appreciate how spiraling debt can impact your life, why not learn a few tips on how to pay off your loans and get back on your feet financially? Here you go:
- Create a Debt Snowball plan
First things first; you should always remember that in financial management, there is no guesswork. Rather, you have to be guided by a solid plan. To get out of debt quickly, list all your debts from the smallest to the largest. Always make sure you include even personal debts to friends because the idea here is to gain total financial freedom.
Financial advisors recommend starting by paying off the loans with the smallest balance. This is because based on your income, there are some debts on the list whose minimum payment you can afford. As you continue repaying the smaller loans, the list of debts will continue shrinking. It is advisable to keep track of all these payments. This not only motivates you to commit more to debt repayment but also helps avoid legal disagreements once the loans are repaid.
- Pay More than the Minimum
This strategy works best with the snowball strategy. Once you have paid off the smaller balances, you should commit more towards the remaining loans. By paying more than the minimum monthly requirement, you will not only get out of debt quickly, but you will also save on interest throughout the loan term.
For this strategy to work, confirm that there are no prepayment penalties for early repayments. It is always possible to talk to your lender about the option you are taking to avoid any penalties. One reason most borrowers don’t take advantage of this option is because they are lured by the extra cash in their accounts to scale up their spending.
If you have cleared one loan, don’t fall into a debt cycle but instead, invest the extra cash into repayment of the other debts. Within no time you will be on your way to financial freedom and isn’t this what everyone wants?
- Create a Realistic Budget
Sounds obvious, right? Well, you will be surprised to know that most household owners expect to ride through their crippling debt situations without a roadmap. It is easy to read tips on how to manage your debt and get out of the financial mess quickly, but this is a personal responsibility. You must be proactively involved, and the first step is to create a realistic budget.
A barebones budget is an ideal tool in helping you settle debt quickly. In the budget, include only the necessities and consider at your finances. Good budgeting calls for sacrifices and the entire household must live within the budget. Such a budget will also help you identify any extra cash that could be used to repay debts while minimizing wastage.
- Sell your Junk
Americans are known for their hoarding culture. A close look at your garage will reveal many items you have been holding to for years, yet they are of no value to you. Take, for instance, hand-me-downs from your old folks. While it is true such items have some sentimental value; you have to think about your current financial situation.
Your old folks might have had extra space for a vintage motorcycle, but for you, this is an item that can fetch good money on eBay or Craigslist. Start looking at items you don’t need and check for online markets or even hold a garage sale. The money you get should be directed to repaying a specific loan.
- Get a Side Hustle
There are many innovative ideas to make money on the side, especially with the advent of the internet. From online tutoring to freelance writing, there is so much you can do, and the extra earnings will go a long way in offsetting your bills.
Of course, there are many other ways to pay off your debts quickly including credit card balance transfer, using a credit counseling company, avoiding the use of credit cards, and using non-recurring sources of income to repay debt among others.
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