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Three Ways to Reduce Your Debt Faster

 

Gloucestercitynews.net (Nov. 20, 2019)--Americans continue to accumulate debt at a frightening pace. From auto or student loans to credit cards, the debt piles up so fast you sometimes don't realize what's happening until it's too late. You don’t have to feel paralyzed, as it is possible to get out from under debt, no matter your income level, it just takes plenty of patience and discipline. Adjustments to spending habits, reducing unnecessary expenses, and even cutting off using credit cards and sticking with cash for a specified period of time could help in reducing the amount that leaves your account each month. Putting spending under the microscope is a great way to force financial changes starting now. In order to tackle outstanding debt, here are three common tips without having to sell off everything you own.

 

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Follow the Debt-Snowball Method

If you’re in over your head with a large outstanding balance, it can take years before you even feel comfortable about the progress you’re making by seeing a dent, reducing motivation to continue on your path to becoming debt-free. By using the snowball method, you can see lift sooner by paying off the smallest account first, and once there is zero balance, then moving to the next. While there is certainly a valid argument that accounts with the highest interest rates should be paid first, at least this way gives the perception that improvement is being made since you’re knocking out accounts.

Refinance Student Loans

Although graduation may have brought in a higher-paying job, a large chunk of your salary will be decked towards paying off student loans, so it’s best to figure out how to pay as little interest as you can. As a new student with limited credit history, interest rates at the time were likely less favorable, but now that you’ve had a few years to build up, it may be time to refinance a costly loan. With an improved credit score you can qualify for a lower APR that can significantly reduce your monthly payment. Although your minimum payment has now dropped, a trick would be to continue paying the same amount each month as you were. Now, more of the monthly payment will go towards the principal, helping you pay off your loan faster.

Transfer Balances to Zero Interest Accounts

As the credit card statement balance carries over month to month, you’re likely getting hit with astronomical interest fees upwards of 16%, and simply making the minimum payments will have little impact. Now is the time to take advantage of balance transfer promotions. By receiving an offer to open a new account or transfer to an existing account, you can combine balances from even multiple cards into one payment. The promotion rate is typically 0-3% interest for a limited time such as 12-18 months, so in that time you can make larger payments to put a dent in the balance. Just keep in mind that there is likely a transfer fee up to 5%, but that up-front cost will soon pay for itself in interest savings within a couple of months.

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