Tag: How To Pay Off Debt

Debt Sucks: Here’s How To Pay Off Thousands In Debt

Debt Sucks Here's How To Pay Off Thousands In Debt
Stress free view

Whether you’re in debt with credit cards, student loans, car notes, or house loans, we all have some form of debt.

The thought of paying off your debt might seem stressful at first but imagine what a debt free life could mean for you.

Debt keeps us from saving money, investing it, and reaching financial freedom.

So, what’s the best method to eliminate debt?

The Snowball Effect

Payoff Debt With The Snowball Effect

There are a few proven methods to paying off debt. We favor the snowball effect method due to its quick momentum and effective results.

This is how it works

You start by paying down your smallest accounts first while making minimum payments on the rest of them.

The approach is to eliminate your smallest debt aggressively. Once you’ve paid off your smallest account, rollover that payment onto your next account.

By the time you’re paying off your third account, the amount equivalent to your monthly payments from the first two will have a drastic effect moving forward on your outstanding balances.

Avoid This Mistake To Stay Debt Free

Avoid Income Creep to stay debt free
Don’t spend more as you earn more

In order for the snowball effect to build momentum, you must be consistent and not divert from rolling over once your first debt has been eliminated.

Most people will fill in the space with something else once they’ve paid off their car or credit cards for example.

This spending habit pulls you back to a never-ending cycle.

Remember, once you’re debt free all that disposable income is yours to enjoy. Save it, grow it by investing, and enjoy it!

Don’t let income creep lifestyle keep you from reaching your financial goals.

This is how people making six figures a year can be in financial ruin just as much as anyone making five figures.

Read: How To Set Financial Goals: 10 Simple Steps!

Generate More Income To Tackle Debt

Generate more income to tackle debt

Everyone has very different financial situations or worlds.

Create a world where you’re earning a little bit more than what you were in order to apply this additional income towards your debt.

Check out “These Are The Best Side Hustles For Millennials in 2020” to read about the best side hustles that can earn you additional income this year to make it happen.

Continuously work towards earning more income to pay off your debt more aggressively.

The sooner you payoff one debt, the sooner you can move on to the next while eliminating accruing interest.

Create A Budget

Create a budget to tackle debt

Use a loan calculator for your student loans to understand and save better on bigger payments, as well as finding areas you can budget for, such as junk food, streaming services, and other non-essentials.

You’d be surprised at how much you can save a week by meal prepping instead of eating out daily.

Write down your expenses and see where you can cut back. This strategy will help you not only develop a winner habit but play an important role in your journey to a debt free life.

Mint is a great app that breaks down your expenses and allows you to have an overview on all your account balances.

It Takes Discipline

The fact that you’re here shows your willingness to make this incredible change in your life.

Financial freedom is an amazing experience we all deserve a chance to.

Realistically, only by taking the necessary actions to see our goals through will we truly reach a debt free life.

It’s time to live in the moment and focus on the things that truly matter to us the most.

Be consistent, stay on top of your goal, you have the power to do this.

Read: 10 Successful Ways To Save Money During A Recession

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Is Debt Consolidation Loan Key to Pay Off Your Debt Fast?

Debt Consolidation
Debt Consolidation

The Federal Reserve reported that the US consumer debt in the second quarter of 2021 had totaled more than 4.2 billion dollars.

Thus, you’re not alone if you currently struggle with your debts.

Furthermore, if you are searching for a method to help you effectively manage your debt and pay it off quickly, taking out a debt consolidation loan might be the answer.

Multiple Debts and Your Credit Score

It is crucial to know that having multiple debts doesn’t necessarily hurt your credit score.

However, there are factors you need to watch out for.

This includes not being able to manage your debts properly.

When you have multiple debts, the reality is that it tends to have different interest rates and repayment schedules.

Because of this, you also tend to forget and mismanage your debt repayments.

Once you miss a loan repayment, it is expected that your credit score will experience a negative impact, which can lead to limited loan options in the future.

Knowing what is an outstanding debt and how it affects your credit score is not enough; you’ll need to find an effective solution to eliminating your problem.

That’s where debt consolidation comes in.

Related: Credit Scores Are Easy to Raise: Reach Excellent

What Is a Debt Consolidation Loan?

A debt consolidation loan is when you turn multiple debts into a single loan that includes one monthly payment and, preferably, a lower interest rate.

In addition, taking out a debt consolidation loan makes your debts more manageable since you don’t have to worry about different monthly payments and due dates; this helps a lot in paying them off easier and faster. 

It is essential to know that debt consolidation loans usually have a fixed interest rate.

This means that the interest rate of your loan from start to finish will remain the same.

Thus, if you have two credit cards with different minimum payments and interest rates, you could take advantage of a debt consolidation loan to pay them off, which leaves you with one monthly debt repayment instead of two.

A debt consolidation loan is considered a way to refinance your debt.

First, you’ll need to apply for a loan to cover your existing debts.

Once approved, you can then use the money to repay your debt balances.

After this, you can then start repaying your new loan during its set period.

Benefits of Debt Consolidation Loan

Getting a debt consolidation loan has several benefits you should consider:

#1. Save Money on Interest

A debt consolidation loan makes sense if it can offer you a lower interest rate than what you are currently paying with your existing debts.

This is why you can save money on interest. 

#2. Pay Off Debt Fast

When getting a debt consolidation loan, the loan amount will be used to pay off your multiple existing debts.

This places you on a faster track in repaying them in full. 

#3. Simplify Monthly Payments

As emphasized earlier, a debt consolidation loan can turn your many debts into one.

This means you only have to think of one payment and due date instead of multiple.

As a result, it simplifies your monthly payments and lessens your chances of missing payments, which can boost your credit score.

#4. Fixed Monthly Loan Repayments

Debt consolidation loans tend to be fixed installment loans.

This means that you’ll know when the life of the loan ends. 

Drawbacks of Debt Consolidation Loan

Knowing the cons of taking out a debt consolidation loan is essential in making a firm decision that can affect your financial situation.

Here are the drawbacks of taking out a debt consolidation loan:

#1. Won’t Solve Financial Issues

Debt consolidation can help you make your debt repayments easier and pay them off quickly.

However, it can’t solve your financial issues, especially when you decide to have multiple debts again.

This can enlarge your overall debt, which makes it challenging to manage and can impact your credit score.

#2. Upfront Costs

It is crucial to know that some debt consolidation loans might come with fees.

Examples of these fees include prepayment penalties, balance transfer fees, annual fees, and many more.

Thus, before you get a debt consolidation loan, it would be best to ask the lender first about upfront costs.

#3. Pay More in Interest

When it comes to a debt consolidation loan, paying more interest can happen in two ways.

The first will depend on your loan amount, credit score, and debt-to-income ratio.

This usually happens when you can’t qualify for a lower interest rate.

On the other hand, the second one can happen if you use the debt consolidation loan to help lower your monthly payments, which is usually done by stretching the repayment timeline.

Unfortunately, this will likely make you pay more interest in the long run.

To Wrap It Up

A debt consolidation loan doesn’t only help you stay organized when it comes to your debts.

It also helps a lot in paying them off fast since you only have to pay your obligations in a single payment instead of multiple ones.

Furthermore, taking out a debt consolidation loan and making on-time payments can boost your credit score, which is an advantage if you decide to get a loan in the future.

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