The large number of indebted people suggests a difficult economy in the USA. Some states have capped the payday loans and set specific rules to protect the consumer, yet the number of people with unpaid loans is quite high. People take loans to cover daily needs and then too often take other loans to pay back the first ones.
If spending a lifetime in debt scares you, below are the best ways on how to pay off cash loans, credit cards, or any other debt much faster.
1. Plan your expenses
The first step to becoming debt-free is to analyze your expenses and income carefully. The best way to do that is to use an app on your phone or your computer. You may also write down every income or expense in a notebook. When you see your budget written down, decide which expenses you can and cannot live without.It is important for borrowers to realize which expenses are necessary and which aren’t. Paying the bills or buying the needed medicine is a must while shopping at the mall and other emotional expenses, like a new dress every month, is something you can postpone for a while.
2. Save money
Once you have written down your income and expenses, reduce the latter by about 30%. Slash expenses like eating out, buying coffee on your way to work, or upgrading your gym pass. The amount of money you save by doing this will surprise you.
Once you understand how you use f your money, putting some expenses aside once or twice per month will be easier. Of course, you should use the money you save for paying off the loans.
3. Look for extra sources of income
If you want to become debt-free, work hard until you manage that. Looking for extra income is an excellent place to start from. You may ask for extra tasks at your primary job or put in extra hours, or you may find a second job as an option. Work online, develop your passion for DIY stuff and sell it or teach private lessons. Anything that suits you is just fine. Just use the extra money to pay off your debts.
4. Pay 10% more with each payment
Many people think paying the monthly installment is ok, and it is, but unless your loan agreement prohibits it, try overpaying the required monthly sum by 10%. This is a great way to get out of debt faster.
You might be dealing with several types of loans, like a mortgage, a car loan and a credit card. If this is the case, add the extra 10% to the smallest debt. Doint this, you will close the credit card debt in several months and only have to deal with the bigger loans. Then, overpay 10% on the next smallest debt. This way of paying off loans will make you debt-free several times faster than making the regular payments on a regular basis.
5. Pay off the loans with the highest interest first
Most Americans have several loans on their accounts, and paying them all off is essential. Repaying the loans with the higher interest first may help minimize the total amount you owe because it will allow you to direct the money to other loans.
6. Refinance your loan
Lenders are usually supportive of their borrowers. They accept certain cases when the borrower cannot repay the loan. One of the lenders’ more useful services is to refinance the loan, where the lender offers another loan to pay off the old one. Usually, the additional loans come with lower interest rates, which make them easier to pay off. It is essential for people to read the new loan offer’ terms and understand how convenient it is.
Never take big loans for paying off small debts. Also, try not to take too many payday loans, which have the highest interest rates.
7. Make sure your credit report is clean
When you have paid off all your loans, obtain documents from lenders confirming that you are debt-free. This is important, because every error or unreported paid-off debt may increase interest rates. The same goes with open bank accounts. Banks usually charge fees for having open accounts. Not paying them off may lead to a big debt. Show this certificate to the reporting credit agencies. This way your credit report is adjusted and includes the latest data.
Although it may seem that being debt-free is an impossible mission at times, it isn’t. Get out of your comfort zone and take the above steps. This is the key to a relaxed way of life. Take baby steps, change your approach toward money and unpaid loans will become history.
References and Sources
1. How to Get Out of Debt even on a Low Income? Retrieved from https://www.listenmoneymatters.com/how-to-get-out-of-debt/
2. 12 of the Fastest & Most Effective Ways to Get Out of Debt & Pay Down Debt. Retrieved from https://www.nomoredebts.org/blog/money/management/12-ways-to-get-out-of-debt.html
3. 8 Guaranteed Ways to Get Rid of Debt Fast. Retrieved from https://www.moneytalksnews.com/8-smart-ways-pay-off-debt-fast/