Paying Off Your Debt: 5 Easy Ways to Do It

Accumulating debt is nothing new. Be it credit card debt, student loans, or household debt, it will exist in one form or another at some point in your life. Fortunately, there are more than a few ways to address them.

The thing with being debt is, it can hamper your lifestyle at the least, and at the worst, they can prevent you from getting a decent loan amount for your business due to a bad credit score.

The trick is to address them right away through planning and discipline. Establishing your own debt payoff plan will only make the process much more efficient, leaving you debt-free in the smallest amount of time. Following through with that plan will only make it easier.

How to Pay Off Debt

1) Draft a budget plan

The simplest way to start off your debt settlement is to draft a budget plan. This will give you an overview of what you should be spending on versus the available amount you have to spend per week or per day.

You can develop this further by establishing new savings accounts meant for all the "extra" money you might be left with after each period. This savings account can then either support your debt payoff or act as a contingency fund.

The trick here is discipline. Others will remove credit card information on e-commerce websites in order to avoid temptation while others might simply stick to a pre-determined shopping list. The degree to which you work on this will depend on your situation and your total balance.

2) Prioritize your debt payments

There are two main methods in debt payment, but the availability and application will depend on the offered repayment plan with the loan.

For the first method, sometimes called the debt avalanche method, your monthly payment will be directed towards loans with the highest interest rating, working your way down towards the lowest. Lower priority loans will instead receive the minimum payment with debt avalanche.

The second method, sometimes called the debt snowball method, approaches things differently. Low-value loans will be prioritized and high-value loans will receive the minimum payment in the meantime. With the debt snowball, interest rates are not given as much attention.

In either case, the goal is to clear your balance without putting too much strain on your wallet. The interest rates of the loans in question will be factors in your chosen debt payoff plan so make sure to keep an eye on those.

3) Utilize balance transfer credit cards

Balance transfer credit cards are a way to achieve debt payoff by transferring outstanding debts from one credit card to another. The goal here is to transfer that balance into another credit card, the balance transfer card, with a lower interest rate.

It's not as easy as transferring credit card debt from one bank to another though. The key here is to read through the terms and conditions of credit card issuers carefully so as to make sure that you won't be digging a new hole for yourself.

Fortunately, more than a few credit card companies will waive the balance transfer fee which often lies in the range of 3%-5%. Some of these companies might even offer terms such as a no-interest period of 6 to 18 months, which should make it easier for people to pay off debt.

4) Pause credit spending

Staying in debt will normally have the unwanted result of ruining credit scores. Of course, we want to address this by paying off debt and cleaning up our credit history.

One thing people forget to take into account though is their credit utilization ratio (sometimes known as a credit utilization rate). This ratio will show you how much of your credit you are currently using over the total amount of revolving credit. In simple words, it's how much you owe on credit over your total credit limit. Generally, you want this to be 30% or less.

The reason this is important is that this gets factored in when your credit score is computed. Incorporating this data into your daily or weekly budget will make sure you stick to that budget without incurring credit charges.

5) Sell your items or services

Lastly, one of the most apparent yet least followed paths. If you have the time, using your skills and creativity can give you a chance to catch up with all your payments. This does not entail having to put up a new corporation. Rather, this is about finding a way to make money out of what is available to you to pay off loan debts.

Can you brew a great cup of coffee? Why not get into the coffee business by putting up a coffee stand at your place or offering coffee deliveries to your neighbors? Alternatively, you could even advertise your services as a for-hire barista.

The key is to understand your own skillset and to figure out how you can apply this in a money-making context to address any loan you might have.

Frequently Asked Questions

Which debt should you pay off first?

There are two main schools of thought about setting up a debt payment plan. One strategy is that you should pay off your debts from the highest interest rate to the lowest because this will save you money over time but if there's one thing most people can agree on, it's that everyone needs help figuring out how they're going to make their payments each month.

The other school of thought says it's best to focus on paying down those with lower rates first, as these expenses can be paid back later when their income increases.

What happens if you never pay off debt?

When you default on credit card payments, loans, or even monthly utility bills, there is a chance that your account will be sent to an outside agency. These third-party companies are hired and used for the pursuit of unpaid debts from firms across the country.

Even though your debt may have been transferred from one firm to another, this does not mean that as a consumer you no longer owe anything. You're still liable for paying what's due even after these agencies take over the responsibility of managing those payments.

Is it better to settle an account or pay your debt in full?

It is always better to pay off your debt in full if possible. While settling an account won't damage your credit as much as not paying at all, a status of "settled" on your credit report can still be considered negative depending on factors like the amount you owe or the length of time it's settled for.

What is the downside of debt consolidation?

Consolidating unsecured loans into one secured loan can have serious consequences as you are putting pledged property at risk. If you're unable to pay back the loan, then all of your assets will be lost—including anything that was used as collateral such as a house or car.

Should you put money in savings or pay off debt first?

Focus on paying down your debt and then save what little funds you have left in the bank by putting as much money into savings as possible. Once this is done, put all of your income towards saving for retirement so that it will be more rewarding when once you start to collect on all your investments at age 65 or 70.

At the end of the day, it's about being smart with what assets you have available to you. The best way to keep on top of your debts is to make sure you know the status of each one and being proactive with your payments. You can learn more about debt management at Any Credit today to get debt-free in no time!

Here at AnyCredit, we aim to make the most complex financial issues and topics easy to understand. In our articles, we will be making analysis, smart finance judgments, and honest conversations to help you make sense of your financial capacities and options.
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