4 Simple Strategies to Destroy Debt Fast
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Hey hey, ho ho, this payment party has got to go! #amiright?!?
When you’re in debt, the last thing in the world you want to do is take your sweet time paying those suckers back. If you’re like me, debt feels like an enormous weight dangling around your neck. It drags you down, wears you out, and makes it tough for you to function like a normal human being. And how can you? You’re constantly worrying about how you’re going to come up with the money to pay X, Y, and Z. It sucks.
Think about it. How are you ever supposed to be saving money when the majority of your paycheck is going to somebody else? You can’t. So, the quicker you get rid of your loans, the better. It’s not just going to make you feel better, it’s going to help set you on the path to building real wealth.
I don’t care if they’re student loans, credit card loans, or mortgage payments. Shed those suckers like a sequined halter in a strip club! Take them off, swing them around, and get rid of them as quickly as possible. Here are 4 ways to speed up the process and do just that.
Pay Extra Each Month
If you want to supercharge your loan repayments, you need start putting extra money toward them right away. Just a little bit each month can save thousands of dollars and tons of time. For instance, adding just $25 a month to a $25,000, 10-year student loan sitting at 6% interest saves you about $1,000 AND cuts a whole year off the life of your loan. If you crank that up to $100 a month, it saves you 3 years and almost $3,000 in interest! Whether you’re paying back credit card debt, student loans, or a mortgage, the more money you’re able to pay over the minimum due, the faster your loan will be paid off.
Pro Tip: If you really want to get out of debt über fast, try using the snowball method. This is a very aggressive strategy that can have you out of debt within a matter of months. Here’s how it works: Use your monthly budget to pay your essentials first. Then, take all the money you have left over and throw it at your debt, starting with the smallest amount first. When that first debt is paid off, use the additional money you now have to pay it toward the second smallest debt. Do this until you’ve eliminated all your debts one-by-one! You’ll find success quickly.
Pay Bi-Weekly
Rather than paying your loans back on a monthly basis, try paying every other week instead. Doing so means that you’ll make 26 bi-weekly payments instead of 12 monthly payments. That adds up to one additional monthly payment each year that you’ll barely even notice. Using the same $25,000/10 year/6% example as above, this process would knock off about 11 months and $820 in interest from the cost of your loan. Not bad for a small switch.
Pro Tip: If you get paid on a bi-weekly basis, this method is super simple. Just pay half of your monthly payment each time you get paid.
Use Auto Billing
If you’re willing to have your account be billed automatically, you can usually save a little bit of money. Not all lenders offer this option, but with most places you can save about 0.25%. That doesn’t seem like a lot, but it adds up over the course of your loan. Using our same example ($50K), this interest rate reduction would save you $6.25 per month…or $750 over the life of your loan. By tacking this savings onto your minimum monthly payment, you’ll save a month on the loan.
Pro Tip: Now, combine this method with paying an additional $25-50 a month, and you could really be saving a lot of time and money.
Consider Refinancing
Refinancing your student loans or other debt could be a great way to pay back loans faster. Let’s use our same borrower and refinance their student loan interest rate from 6.0% to a fixed 3.50%. This alone saves about $60.67 on the monthly payment and $7,280 in total interest. If you add that savings back to your payment, you’ll cut off about 1 year and 3 months of payment time ANDÂ save a total of $8,522 in interest. That’s more than a 50% savings over the loan at 6.0%! Just be sure to consider the pros and cons of refinancing, particularly when refinancing a student loan, before making a final decision.
Pro Tip: Try refinancing through a lender like SoFi. There, you’ll find fixed interest rates for student loans starting at 2.99% APR*. You can also refinance your other debts – like high interest credit cards – into a personal loan with SoFi, where fixed rates start at 5.99% APR* with AutoPay. And, when you refinance through SoFi, there are no origination fees or prepayment penalties, which is a huge plus! Use this link to get a $100 cash back bonus when you refinance your student loans.
Wrapping Up
So, what are you waiting for? Use these tips to start eliminating your loans right away. They sooner those buggers are gone, the better off you’ll be!
I know it sounds cheesy, but paying extra gives you a good feeling too. Especially if you’re hustling to make extra money to throw at it. It’s kind of a reward for your hard work. Even if that reward is kissing the money goodbye.
We’re throwing a little extra money at our mortgage each month. It’s not a lot (then again, neither is our mortgage), but every little extra bit helps, right? Once we can better fund our retirement accounts, *then* I’ll focus on throwing extra on the mortgage.
Paying extra does give you a good feeling. Sometimes, that is as important as the actual numbers because it keeps you going!
Getting rid of debt is a must for financial success, but I think you can also be strategic with your debt. If you have a loan at 8% and another loan at 3%, even if the 3% loan has the smaller balance you would do MUCH better by applying extra payments towards the 8% loan. Unless you have cash flow problems, it always makes sense to attack the higher interest rate loan first. Also, if you have some very low interest loans (1% or lower for example), it may be worth it to just do the minimum on those debts and consider investing elsewhere (401k, IRA or taxable account) for a much higher return.
In the end, it’s all about how you feel. Some people are gung-ho about paying off debt and can’t sleep easy even with 0% interest rate loans. Those people should definitely focus on debt repayment for peace of mind. But if you take a long term strategic approach and are okay with a little bit of debt hanging around, that can be a smart way to go as well.
Yeah, mathematically that is the way to go. However, it kind of depends on how quickly you attack it. The emotional boost you get from paying off small loans first can help keep you motivated to stay the course. Now, if you plan to pay your loans back over several years, I’d definitely attack the 8% first. That would also be a situation where I would strongly consider refinancing.
Paying extra each month is definitely a good strategy. I couldn’t afford paying it biweekly. So, I’d settle with doing it each month. This one would really help me get out of debt more quickly and guarantees results.
Perfect! Keep making those extra payments.
sum it up pay loans faster = you save money… umm DUH
Yikes! Somebody woke up cranky today 😉
These strategies are really good as these helped me last year to get out of debt quick and easy. Now, I am proud that I have never been in a great amount of debt for the last 6 months.
Good work James! Congrats!
For me, balance is the most difficult thing, particularly when you might have future expenses. What do you do? I still don’t have the answer. Truth is I need to come up with a plan and stick with it.
Finding balance is always difficult. Personally, I no longer finance anything except for my house. The quicker you can get out of debt, the more options you’ll have.
These are great tips. I do all of these and I’m considering refinancing my student loans. That’s my last big hurdle until I become debt free.
Awesome Chonce! Keep it up.