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Fastest Way to Pay Off your Debt

“I felt hopeless about money, and the whole idea of trying to get out of debt was such a drag, “Not surprisingly, I did everything I could to avoid the topic.”

My idea is to go on a Spending Fast for a year – spending money on necessities only to see what happens, how much debt I can get out of and how much I can get into savings.

Many people tell us that they would love to pay down their debt or get rid of it altogether, but they aren’t quite sure of the best way to do it or where to start. There really isn’t any one “best way” that works perfectly for everyone. So here are a dozen suggestions to get you started. The more of these you can apply, the faster you will get out of debt.

  1. Pay More Than the Minimum

Make sure that you always pay more than your minimum payments. If you only make your minimum credit card payments each month, it can take forever to pay off your balance. If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!

  1. Spend Less Than You Plan to Spend

Most of us have wishes and wants that are bigger than our pay cheques. You might have heard the great saying that, “You can have almost anything you want; you just can’t afford everything you want.” Many people get into debt and stay in debt because they tend to buy what they want, when they want. Not even millionaires can afford to buy everything they want. If you want something, don’t buy it unless you have the money. If you can be satisfied with less than you would ideally want, even temporarily, you can use the money you save to pay down your debt. By the time your debt is paid off, you’ll probably have adjusted to your new priorities, and you can use the money that you are saving to put towards other financial priorities.

  1. Pay Off Your Most Expensive Debts First

One of the smartest strategies for getting out of debt is to make minimum payments on all of your debts except for one. Chose the one debt that is charging you the most interest and focus all of your extra payments on paying that one off first.

Once your first, most expensive debt is paid off, take all of that money that you were paying on that first debt and focus it on the next most expensive debt. Continue this method as you pay down each of your debts, and you will be left with your least expensive debt to pay down last. This strategy will get you out of debt quickly, and you will feel encouraged as you see your progress. There is also a different variation of this strategy that a lot of people find even more motivating.

  1. Buy a Quality Used Car Rather than a New One

You can save yourself thousands of dollars if you buy a quality used car rather than a new one. The money you save can help you get out of debt much faster. Or you can stick to the public transport. If you’re not sure you can do the public transportation thing, start small with one a goal of taking public transportation at least one day a week until you figure out the system. Before you know it, you’ll be making friends and riding along with everyone else. You will save enough money to pay off debts.

  1. Get a Second Job and Pay Down Your Debt Aggressively.

Getting a second job, or consistently picking up an extra shift or two, is a common way for many people to pay down their debt. This doesn’t work for everyone, but if you can make it work, you could be debt free within a short number of years. For this to work, you must apply all of your extra income to debt repayment. Working the extra shifts or hours also doesn’t need to be permanent. Once your debts are paid off, you can look at scaling back again.

You could also consider generating some extra income to pay down your debt by capitalizing on a hobby you enjoy, or a skill set you have. For example, if you’re a good writer, consider freelancing articles for blogs, newspapers, media outlets, or on a freelancer website. If you’re crafty, consider selling your creations.

  1. Track Your Spending and Identify Areas to Cut Back

For some people, doing this can save them almost as much money as working a part time job. You won’t know how much you can save unless you give this a try. Track what you actually spend—not what you think you should be spending, over the course of a month. If you aren’t honest with yourself in this exercise, it won’t work, but most people are surprised by what they find out about their spending. Once you know your spending habits, you should be able to identify areas where you can cut back. Allocate the money you “find” to paying down your debts.

  1. Get a Consolidation Loan

See if your bank or credit union can help you consolidate all of your consumer debts into one loan with one payment at a lower interest rate. This can be a helpful first step in getting your debt paid off. However, getting a debt consolidation loan will only help you if you create a budget that does two things:

  • It helps keep you from building up new debt while you’re paying off the consolidation loan.
  • It allows you to save some money every month.

Savings isn’t usually what someone in debt thinks of first, but if you don’t have savings, you will likely need to use your credit cards again part way through your loan and rack up more debt. The end result could leave you in the same place as before or even worse off. A US bank that reviewed all its debt consolidation loans over a number of years discovered that over 70% of people who took out a debt consolidation loan from them were no better off financial after repaying their loans. This happened because these people did not solve their underlying problem of spending more than they earned.

So the key to benefiting from a consolidation loan and making it an effective tool is to use a spending plan (a budget) to ensure you keep your spending under control and set aside some money each month for emergencies or unplanned expenses which will inevitably occur.

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