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4 Strategies to Eliminate Debt Rapidly

eliminate debt rapidly

By Cynthia Maddison

Paying off debt and still enjoying life while you do it is a tricky thing to do. People who drown in debt forget about their wellbeing just because they want to get rid of it as soon as possible. They start to focus on reducing their spending until they no longer invest in themselves. This article should serve as a guide to paying off debt without eliminating all the activities that are worth living for from your daily routine. The few strategies listed below, as well as these tips regarding how to track monthly expenses, should come in handy for any person who struggles with debt, from regular homeowners to businessmen. Here’s what you should know about this topic:

Tracking monthly expenses

Calculating the monthly expenses always starts with putting together the total monthly income. This amount should include all the money that you earn from different sources (salary, hobby income, interest income, investment income, child support, extra money and so on). By calculating the total monthly income that you will know how much money you have available for the upcoming expenses, and how much money you can direct to paying off your debt.

Separate the monthly expenses in categories. A simple example is listed below:

  • Home expenses: home expenses refer to paying off mortgage or rent, depending on the situation; paying all the taxes related to the house; paying for any repairs or association fees
  • Utilities: utilities involve bills for services such as electricity, gas, water, phone, cable, Internet, recycling and so on
  • Household: household expenses refer to buying cleaning supplies, lawn care products, batteries, lightbulbs and other unexpected items that might be required to maintain the house in a good condition
  • Transportation: the situations differ when it comes to transport – if traveling by car, the expenses will include paying for the car itself, for gas, repairs or maintenance costs and other; if traveling by different means of transportation, the expenses include taxis, ride-sharing, subway or bus costs
  • Insurance premiums: if you opted for insurance premiums, you can downgrade them temporarily (life insurance, health insurance, umbrella insurance etc.)
  • Food: food costs involve both groceries and eating out
  • Personal care: these can be limited depending on the needs of each person; personal care expenses usually include paying for prescriptions, toiletries, clothing, memberships, and other medical bills
  • Family expenses: family expenses refer to child care, tuition fees, allowances and any other amount of money that goes to other family members
  • Entertainment: entertainment expenses can also be limited according to the needs and desires of a person; they usually include paying for streaming services, for hobbies, going out and anything that is related to the mental wellbeing of a person
  • Banking: pay any banking fees and safety deposit taxes before paying off debt
  • Debt repayments: debt repayment must be done for each credit card that you possess, student loans or any other loans that you applied for in the past; you can also consolidate these loans through IVAs and debt settlements which will be discussed later in this article.

Using exclusive applicant data provided by student loan lender Funding U, LendEDU found that a solid proportion of student loan borrowers will probably face a serious debt-to-income (DTI) problem. Here is a link to the full report that also discusses the direct impact of student loans on DTIs for recent graduates and how this can directly affect their future debt payments related to mortgages, cars, etc.

eliminate debt rapidly

The avalanche strategy

This strategy is probably the most common among people who struggle with debt. It involves stacking debt to form the highest interest rate. The first step is to focus on the minimum payment of all the debt you have. Then, you can turn your attention to the account that has the highest interest rate. Once you’ve discovered which one is it, you can put more money toward it. Continue to direct more money towards this account until it is completely paid off. After that, you can repeat the steps for the remaining accounts that you need to repay. To put it simply, the avalanche strategy involves paying off everything based on the interest rate. After a simple calculus, you will figure out that you are going to repay less money overall. Moreover, you will pay the amount quicker. If paying less in interest is your main purpose, this strategy is the most recommended one.

The snowball strategy

Another strategy that you can try if the avalanche one is not suitable for you is the snowball one. This is a popular approach among people who struggle with the dept. The first step is similar to the one encountered in the previous case: paying the minimum amount for all accounts. Then, the maximum amount of money goes towards the debt in the smallest balance. Once this debt is paid off, the maximum amount of money moves to the next smallest balance debt and so on. Again, you need to repeat the steps until the entire amount of money is repaid. This method has both pros and cons. It is recommended for people who have a small debt to pay off. For people who need to pay off larger amounts of debt, the avalanche strategy might be more suitable. The downside of the snowball strategy when comparing it with the previous strategy is that the final amount of money that you end up paying is quite large because the interest rate is not the one dictating the priority of the debt.

eliminate debt rapidly

IVAs

An individual voluntary arrangement (IVA) represents a good option for people who want to pay off their debt as quickly and conveniently as possible. Through IVAs, you can pay off a percentage of your debt back, based on the agreement you’ve settled beforehand. IVAs involve setting a certain period of time in which the debt will be paid off. The creditors won’t be able to contact you any longer when they agree to the IVA. Luckily, most creditors prefer IVAs over bankruptcy because they receive more money through them. You can learn more about IVAs here. These arrangements keep you away from legal action, as everything is handled by a third-party. IVA repayments are affordable and convenient for people who are not able to gather together all their finances. Moreover, the company that offers such services will give you permanent support during the process.

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