How To Pay off Debt Faster
Debt is sneaky. If you’re not paying cash for everyday purchases, it’s easy to lose track of how much you are spending. Before you know it, your credit card bill is in the thousands. Add a medical emergency or car repair to the equation and suddenly your financial situation feels out of control. If you feel like your debt is weighing you down, don’t panic. With a little planning, you can pay off your debt faster than you imagine. At First Exchange Bank, your financial health is our top priority. We’ll show you the best way to pay off debt so that you can get back to enjoying life in North Central West Virginia.
Good Debt vs. Bad Debt
If you’re wondering how to pay off debt, the first step is to identify the sources and amounts of your debt. Credit cards, a mortgage, student loans, car loans, and medical bills are all common sources of debt.
Next, evaluate your debt. Not all debt is bad. If you borrowed money to invest in your future, that debt is often considered good debt. Good debt is usually in the form of a long-term loan for school expenses, real estate purchases, or running your own business. Good debt is a financial investment that will help you build your net worth. While you may want to work on paying down your good debt at some point, place those numbers to the side for now.
You want to focus on paying off your bad debt. Bad debt includes money that was borrowed to purchase consumable items or rapidly depreciating assets. Credit cards are the most common source of bad debt. Vehicle loans are another source of bad debt due to their rapid depreciation. Focus on paying off your auto loans and credit card debt first.
Review Your Budget
A budget is a necessary tool for achieving financial success. If you don’t already use a monthly budget, consider getting started with a personal budgeting app. In order to start paying off your debt, you need to decrease the amount of money you spend each month. Here are some tips for cutting your spending:
- Review your online memberships and streaming services. You may be paying for apps and subscriptions that you no longer use.
- Eat out less. The savings associated with making your lunch and coffee at home can really add up over the course of a month.
- Limit your entertainment spending. Decrease the amount of money you budget on going out each month and put that money towards your debt.
It may be tough to cut back at first. Remember that small changes can produce big results. Imagine how you’ll feel when your debt is paid off, and you don’t have to stress about high interest payments anymore. When you stop owing interest on debt, you’ll have more money in your bank account for eating out and entertainment.
Attack Your Debt
Make a list of your bad debts and organize them by interest rate. Continue to make your minimum monthly payments on all your debts, but put extra money each month towards the debt with the highest interest rate. That debt is costing you the most money each month, and the faster you pay it off, the more money you will save.
When you completely pay off that first debt, move onto the next highest interest rate. At this point, you’ll have even more money available to help pay down your debts because you will have one less debt payment each month. Each time you pay off a debt, you speed up the rate at which you can pay down the next amount. The first one is the hardest, but don’t give up! Once you get the ball rolling your debt will shrink exponentially. You can track your progress with a debt repayment app.
Supplement Your Income
If you have a hard time finding extra money in your budget for debt payments, consider getting a flexible side job. Spending a couple hours each week making extra money is one of the best ways to pay off debt. Think about your talents and how you can use them to make some extra cash. Although the possibilities are endless, here are a few examples to get you thinking:
- Sell unwanted/unused items on Facebook marketplace
- Pick up side jobs in your area on TaskRabbit
- Become a tutor
- Walk dogs or pet sit
- Deliver groceries
- Rent your car
Get A Debt Consolidation Loan
If you have outstanding balances on high interest credit cards, you may want to consider debt consolidation. Debt consolidation can be the best way to pay off credit card debt. Simply put, debt consolidation involves taking out a loan and using the money to pay off multiple sources of debt. Instead of having multiple credit card bills, you now have one personal loan to pay back. Debt consolidation does not pay off your debt, but it is a good first step to managing it.
When you use a personal loan to pay off your debts, you simplify your monthly payments. You now have only one payment to focus on each month. Another advantage of a personal loan for debt consolidation is the interest rate. Typically, interest rates on personal loans are lower than credit card interest rates. Secured personal loans offer the lowest interest rates and require you to have cash in a savings account as collateral to back the loan. Unsecured personal loans require no collateral, but you will pay a little more in interest. Either way, you are saving money by ditching those high credit card interest rates. With one monthly payment at a lower interest rate, you can pay off your debt faster.
Take Advantage of Your Home’s Equity
If you own your home, you may be able to tap into your home equity to help pay off bad debt. Home equity is the difference between your home’s market value and the outstanding balance on your mortgage. A home equity line of credit (HELOC) can give you access to the funds you need to pay off your credit card or car loan. Interest rates on HELOCs are often lower than other interest rates because your house acts as collateral for the bank. Talk to your local home lender to learn more about the flexibility of a HELOC and how it can help you pay off your bad debt.
First Exchange Bank Can Help
First Exchange Bank has been assisting West Virginians with their financial goals since 1932. Our financial representatives offer judgment-free consultations that can help you develop a debt repayment strategy that works for you.
At First Exchange Bank, we offer the best debt consolidation loans and home equity lines of credit to help you manage your debt. Give us a call or stop by one of our convenient locations in White Hall, Fairmont, Mannington, Fairview, Hundred, or Morgantown, WV. Our helpful associates can show you how to pay off your debt fast