If you are overburdened with liabilities, then you are probably looking for ways to get rid of debt fast. However, it is important to be aware of the dangers of acting on impulse or desperation.
Companies like Ladder Advisors and Carina Advisors have been flooding the market with unrealistically low-interest rate offers that promise a bit more than they can deliver.
Fortunately, there are a number of methods that you can use to get rid of debt fast. One of them is to make extra payments, while the other one is debt consolidation. Here are the advantages of these two methods.
Extra Payments to Get Rid of Debt Fast
To get rid of debt fast, you must think about making extra payments. That is, you must repay debt more frequently. For instance, if you paid just once a month, you should think about repaying twice every month. It does not take much to understand why this method can help you to get rid of debt fast. If you are already facing debt collection, it is important, you need to first check how it will affect your personal finance as well as your purchasing power.
But there is an easy way to find out if you can make multiple debt payments each month to get rid of debt fast. It involves making a list of all non-essential expenditures. In other words, draw up a list of all unnecessary expenses, including dining at restaurants, subscriptions, etc.
Most likely, you will find several expenses that you can exclude from your monthly spending. This may probably leave you with enough money so that you can make multiple payments each month to get rid of debt fast.
This method might appear to be a little austere; however, you won’t be doomed to a spartan existence if you curtail all non-essential expenses. Instead of watching movies, you can spend time reading classics or even better, you can increase your financial knowledge to make an investment portfolio for financial independence after you are out of debt.
Instead of going out to eat, you can home cook food for healthier meals and save money in the process. If you decide to go ahead with extra payments each month, you can use either one of two methods: the debt avalanche method or the debt snowball method. As their names suggest, they are methods that empower you to get rid of debt fast.
Debt Avalanche
Under the debt avalanche method, you will pay off the debt with the highest interest rate. That is, you should get rid of the costliest loan first. This method is useful since it helps you to keep the interest expense low. Using the savings method outline above, you can make extra payments, according to the debt avalanche method, to get rid of debt fast.
Debt Snowball
The debt snowball method is a little different. You will first pay off the smallest debt. Under this technique, you will learn how to pay off debt in order of size, starting from the smallest. The advantage of this method is that it brings quick gratification and a sense of fulfillment since paying off debt in full almost certainly offers great relief and can motivate you to target larger loans. The premise of this method is simple. Start off with the simplest loans and work your way gradually towards the hardest.
Debt Consolidation to Get Rid of Debt Fast
Debt consolidation is another great way to get rid of debt fast. One way to do this is to get a debt consolidation loan. Under this scheme, all your loans are combined into a single amount, which often has a favorable interest rate for you. This method may help you to save a lot of money if you have loans with high interest rates like credit card debt, for instance.
Another important advantage is that this method simplifies repayments considerably. Instead of paying off multiple debts separately, you just have to pay off one amount.
As good as it may sound, debt consolidation is not for everyone. The primary advantage is in the lower overall interest rate. You will qualify for the lowest interest rates if your credit score is good. Your FICO score must be 700 or more. Another thing to keep in mind is that if you qualify for a debt consolidation loan, you may have to make repayments over a period of 2 to 5 years.
Hence, this method is a long-term plan, which means it will take you some time to get out of debt. Although it is not the fastest method, it will bring one major advantage. The amounts that you pay will likely be smaller due to the longer time duration of the repayment schedule. Debt repayment may be simpler, as a result.
Debt consolidation works only if the interest rate offered is lower than the average interest rate on all of your loans.
Balance Transfer Credit Card
Having understood this key concept, you should then know about another method of debt consolidation. This method involves transferring all your balances to one account using a balance transfer credit card that is issued for this purpose.
This method has its own pros and cons. Using the balance transfer credit card, you can transfer all your debt to the new account without incurring transfer fees. You will not have to pay any interest during the promotional period. However, once the promotional period ends, you may have to pay heavy interest. Hence, you should use a balance transfer credit card only if you are certain that you can pay off the entire amount before the promotion period ends.
The promotional period can last from 12 to 18 months. You must be certain about the duration of this critical time frame before you sign up for the card.
No matter which method you decide to use, you must take care of one key factor. As far as possible, do not take on additional debt as it may defeat your debt consolidation plan. Unless you can pay your balances on time, you should avoid using credit cards.
Before signing up for your debt consolidation loan, you should check to see if there is any penalty on paying debt faster. Ideally, there should be no such condition. This will help you to get rid of debt fast.
