How to Pay Off Debt: 9 Tips for Success

We would never describe you, dear reader, as mediocre. But you may be similar to the average American in one way: having debt.

In fact, the average American owes over $90,000 on car loans, credit card bills and more. And when debt piles up so high, financial freedom can feel out of reach.

But regardless of your financial situation, you can achieve a debt-free life. You just need the right debt management tools and strategies to get there. In this article, we outline several tips that can put you on the fast track to eliminating your debt—for good.

1. Create a budget

A failure to plan is a plan to fail, they say, and the first step toward getting out of debt is making a debt management plan by sitting down and figuring out what you owe and how much of that debt you need to pay back every month .

The tips below will help you find a reasonable amount, but you also need to consider your monthly take-home pay and figure out regular expenses like bills, food, eating out, etc.

Find out where, if anywhere, you’re spending money unnecessarily (do you really need all these streaming services?), and where you can potentially cut back. (Maybe you bring lunch to work instead of eating out.)

Once you have a feel for both your income and expenses, you can start making a budget that includes a plan to pay off your debt.

2. Pay more than the minimum payment for your monthly payments

It can be tempting to make the lowest monthly payment on all the debt you have, especially if the lowest payment already accounts for a significant percentage of your available take-home pay.

But doing so means extending your debt. Instead, focus on one debt and pay more than the minimum payment each month until you clear it.

3. Aim to get rid of the most expensive debt first

Related to the above: Not all debt is created equal. High-interest loans and credit card debt will cost you more than low-interest debt over the same period, as interest rates compound.

Instead, short-circuit a protracted repayment process by prioritizing eliminating your most expensive debt. This approach, called the Avalanche Method, is recommended by many financial experts.

4. Or focus on the smallest debt

Maybe your student loan is where you owe the most money (and the highest interest). But you have a small private loan (with a lower interest rate) that you can pay off in a couple of months.

Many experts recommend focusing on the small debt first, so you can make an easy profit and avoid losing even a small amount of money on regular interest payments. Doing so will free up that budget, or even allow you to put more money toward those high-interest debts.

This is called the Snowball method, by the way, and you can probably figure out why.

5. Don’t let your bills fall behind, and pay them off as soon as you can

One thing you don’t want to do when paying off old debt: Create new ones. This can happen through sheer inattention (perhaps you missed a bill in the post), or if you struggle to hold back on spending. (It happens, especially when dealing with unexpected expenses like car repairs.)

Avoid falling behind on regular bills by signing up for autopay, making sure you have enough money in your account when the due date comes. (You can also sign up for overdraft protection at your bank, just in case.)

6. Stop using the payment methods that put you in debt

Has uncontrolled credit card spending put you in debt? Or was the option buy now, pay later at checkout a bit too enticing? Then remove these payment methods and stick to using your debit card.

You don’t want to get debt free only to get it back again. And with debit, you can’t spend what you don’t already have. So if you don’t trust other payment options, don’t use them.

7. Find ways to increase your income

The reality is, especially in the early days of paying off debt, you may owe more than you do. (After all, this is how many of us get into debt in the first place.)

Doing everything you can to reduce what you owe is only half the equation. Bringing in extra cash is the other half. If a new job or promotion seems out of reach, try bringing in extra cash by:

• Picking up a side life
• Using an existing skill to freelance
• Ask for a raise at work
• Looking for higher paying jobs
• Using public resources—such as your state’s education and workforce development agency—to obtain additional education or training
• Sell ​​unused or new possessions online, from sweaters you rarely wear to the tennis racket gathering dust in a closet

Every little bit helps.

8. Restructure your loans

Generally speaking, there are two ways to do this:

1, look into refinancing your debt. You may qualify for a lower interest rate or be able to shorten the term of your loan, reducing the total interest you will pay. (Remember: Interest is essentially the money you pay to get money, so you want to pay as little as possible.)

Keep in mind that this may increase your monthly payments in the short term, but you’ll end up owing less over a shorter period of time.

2, Consolidate your debts. The idea here is that you combine several debts into one debt, preferably with a lower total interest, through a personal loan from a bank.

We suggest you speak with a financial advisor or an accredited credit counselor before taking this step, as debt consolidation is not without risk.

9. Watch early withdrawals from your 401k

Generally speaking, you don’t want to make early withdrawals from a 401(k) account. You pay income tax on the amount you withdraw, plus a 10% penalty if you’re younger than 59 1/2. But there are some situations where it makes sense to cover your debt with money from your 401(k), including if you:

• About to fail on a loan
• Have no other way to pay debts
• Would otherwise have to be declared bankrupt

Each of these comes with serious consequences, such as court action, wage garnishment, and the loss of assets you put up as collateral for loans. You can save more by paying taxes and penalties to withdraw your 401(k), but consider it a last resort.

Working towards a better financial future

If you’re in debt, it may seem like adding an expense like monthly life insurance premiums is a bad idea. But you might be surprised to learn that you can’t afford to do without it.

That’s because if something were to happen to you, your debts would become someone else’s responsibility – most likely a spouse or even your child (if they’re an adult). How would they pay off these debts? Life insurance is an affordable way to provide financial protection for your family, even when you’re not around.

At Haven Life, a 25-year-old woman in excellent health can get a 10-year Haven Term policy with a face amount of $250,000 for $8.60 per month. That’s less than most people spend on coffee, and it will cover the next few years while you pay off those debts.

Start your journey to peace of mind by getting a free quote online today.