Try a debt pay-off strategy, do a balance transfer, tap into your savings, negotiate a lower rate, use windfalls or take up a side hustle.
Debt has a way of sneaking up on us. If we don’t pay attention, our credit card bills can get bigger than we expect.
In most cases, a strategic, methodical approach is the best way to pay off debts. But sometimes a fast, dramatic paydown makes sense.
Regardless of how you do it, use your renewed attention to build a monthly budget that prioritizes paying debts. Just like you budget for fixed expenses and discretionary spending, include a line item in your budget for credit card payments every month.
If you haven’t tried one yet, consider the two most popular methods for paying off debt: the “snowball” method and the “avalanche” method. Both are effective ways to focus your debt payments, and both might work faster than you think.
With both methods, you’ll pay the minimum due on all your credit cards each month. But with the “snowball” method, you’ll pay as much as you can afford on the card with the lowest balance. Once it’s paid off, you’ll move on to the card with the next-lowest balance, again paying as much as you can, including the minimum payment on the card you just cleared. With the “avalanche” method, you’ll focus on the card with the highest interest charges until it’s paid off. You won’t clear as many cards at the start, but you’ll pay less in interest charges.
The longer you hold onto debt, the more you’ll pay in interest charges. So it might make sense to dip into your savings to pay off debts that cost you money every month.
Consider the math: is the interest you’re earning on your savings getting wiped out by the interest you’re paying on your credit cards? It might be worth it, using a lump sum from your savings to clear debts with high monthly costs attached.
This won’t pay off your debts fast, but it could make a more gradual pay-off plan more affordable. If you have a good relationship with your lender, or your credit score is in good shape, your creditors could be willing to negotiate a lower interest rate.
It’s worth a phone call. Get in touch with your bank or card issuer and see what they can do for you. You could save a lot of money on interest charges over the months or years ahead.
Balance transfers are easy to do, and they can provide some short-term debt-payment relief. Check with your bank or research lenders online. Look for special balance transfer cards that allow you to move the balance from your high-interest credit cards to a new credit card with a low or zero interest rate.
The low or zero rate usually applies for only a limited period of time -- typically six to 18 months. But that’s time you can use to pay off your debt without incurring more interest charges.
Double-check the balance transfer card’s APR before signing up. Your credit score might impact the rate, changing it from the one promoted to entice you.
If you’re owed a tax refund or a bonus at work, skip the big-ticket indulgence you might otherwise spend it on. Use the cash to pay off your debts instead.
Birthdays or holidays can bring windfall cash too. These are lump sums outside your monthly budget that you can use to pay off debts fast.
What about taking extra work to bring in cash for debt payments? From consulting and advisory roles to delivery and rideshare driving, the gig economy provides a lot of flexible, temporary opportunities.
Keep it light if you can, in balance with other work, and use your debt-free plan as extra motivation. Set a goal for side hustle earnings, so you always know what you’re working toward.
One man’s trash is another man’s treasure. Lots of apps and sites make selling easy, too.
Look around, see what you can let go of, then start with Ebay, Craigslist or local consignment shops. Use the earnings to boost your debt payments.
Use Bright to become debt free faster.
Bright uses an AI-driven plan to pay off cards fast. It’s tailored to you, and it works automatically.
If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your bank and your cards, then set a monthly goal. Bright studies your finances, finds the fastest way to pay off your cards, then makes payments for you, always saving you more money.
With your personalized Bright Plan, you can boost your credit score, build more savings and even grow your own investment portfolio. Bright’s patented AI platform works with your goals and does it all automatically.
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With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.