Debt can be depressing. It eats into your income each month and can prevent you from more aspirational borrowing, such as a first mortgage.
Ridding yourself of that monetary ball and chain is a big ask, but even the most eye-watering levels of debt can be removed with graft, focus and the right tricks. Here are ten ways to pay off all your debt, and fast.
1 - Make a plan about which debts to tackle
Getting out of debt is hard work: it takes commitment and planning to do so. If you’ve got more than one debt, figure out which you’d like to clear first, whilst making sure you keep up with the minimum payments on the others.
There are two common ways to decide which debt to go for. There’s the avalanche method, where you pay off the highest interest rate debt first, or the snowball method, which focuses on paying off the smallest debt first.
The avalanche method is designed to save you the most money. The theory is that if you get rid of the highest charging accounts first, the interest you pay each month will get less and less expensive. But if you have one large debt you’re chipping away at fruitlessly, it’s easy to lose motivation and give up.
This is where the snowball method comes in. It’ll help you to get rid of individual debts quicker, which keeps you inspired to keep going. It could also reduce the minimum payment you need to make each month quicker (leaving you the option to plough the difference back into other debts). Each method has advantages and disadvantages, so figure out which is best for you and base your plans around it.
Top tip: Make sure you keep a record of how much debt you've paid off. Say your debt is £10,000, it’ll be a lot easier paying the final £5,000 off knowing you’re already halfway there.
2 - Stop borrowing
It may feel a little bit like a chicken and egg situation, but if you’ve got into debt, it’s a good idea to look at the reasons why. Have you had a change in your circumstances that’s made borrowing essential? Or are your debts more to do with unnecessary lifestyle choices?
Whatever the reason, looking at why you’ve slipped into debt is a good starting point for finding ways to get out of it. Once you’ve done this it’ll be easier to stop borrowing. Unless you absolutely have to use your credit card and overdraft, don’t spend on them or take out any more sources of finance. Unless, as we’ll explain below, it’s to reduce the costs of your debt.
3 - Transfer to a cheaper source of debt
The interest on your debt can be just as big an obstacle as the total amount. If you’re paying high rates then very little of the money you funnel towards your repayments will go on dropping the level of debt you have. This can be extremely demoralising.
If you have a good credit score then switching to a credit card with a 0% interest introductory offer could save you a wedge. If you have existing credit card debt, look for a balance transfer, or if you’re wanting to pay off an overdraft or loan then focus on a cash transfer offer.
You may have to pay a transfer fee but it should work out less than the interest on the existing debts. Just make sure you check how much the rate goes up after the introductory offer, so it doesn’t end up being more expensive in the long run.
If your debts are larger or your credit score isn’t high enough to allow you access to these offers, then a debt consolidation loan may be more attractive. This is providing you can get a lower interest rate than what you are currently being charged on your existing debts.
You can check whether you are eligible for either option using soft search facilities or eligibility checkers. These let you know how likely you are to be accepted without impacting your credit score.
Don’t be too disheartened if this isn’t something available to you right now. Paying off debt will naturally improve your credit score, so there’s every chance that further down your debt-destroying journey you’ll be able to access this credit. You can keep using the soft searches regularly to see if you’re more likely to be offered the deals at a later date.
4 - Cut back on unnecessary spending
How often did you use Netflix last month? When was the last time you went to the gym? And is that daily coffee shop visit absolutely necessary?
These are all examples of spending you could cut back on. Go through your bank statements from the last month or two and ask yourself how important each purchase was, and whether you can trim it out of your future spending.
It doesn’t have to just stop with working out what you do and don’t use, you can also look for cheaper alternatives. Running around your local park is cheaper than the gym, as is making your own coffee in the morning or taking a packed lunch to work. Any savings you make, you can put towards eliminating your debt.
Top tip: Don’t just do this as a one-off, try to set time aside each month to review your spending. Paying off debt is addictive and as you start to see the amounts you save, suddenly those impulsive purchases seem less alluring.
Ever wondered how much those multiple streaming subscriptions really cost you? Check out the Price of Pop Culture in 2020.
5 - Learn to budget
The more money you can allocate towards your debts, the quicker they’ll disappear. So if you can learn to budget, this will leave you with more excess cash to put towards them. It’ll also mean you’re less reliant on credit towards the end of the month.
Set aside specific pots to pay for the various things you get up to, be it socialising, food and drink, or clothes. Don’t spend more money on any of these things than is in these pots, and better yet, leave some left over which you can pay off debt with instead.
6 - Pay more
It sounds obvious, but could you pay a little more each month? Calculate the minimum amount you need to pay to fulfil your contractual requirements (as well as meeting your priority bills and essential living expenses) on all your debts. If you can spare any more beyond that figure, even if only on an ad-hoc basis, then put it towards your debt.
As you go on, you’ll notice the total minimum payment dropping each month. This will happen when you finish paying off loans and as your credit card balances get smaller. Don’t be tempted to lower the amount you pay, try to keep it up. You’ll now be paying off more than normal and it’ll enable your debts to drop in a much quicker fashion.
7 - Clear your debt with your savings
Have you got any money set aside? While it’s tempting to keep savings for a rainy day, alleviating your debt situation can boost your credit score as well as save you money in the long-run.
Unless you’ve benefited from introductory offers on your debts, the chances are you pay more interest on your those than you earn on your savings. This is because the interest on savings accounts or ISAs is rarely higher than the interest charged on debts such as loans or credit cards.
Reducing debt will also help to improve your credit utilisation ratio, which is the amount of money you’ve borrowed out of the total available to you. Keeping it to under 30% can help boost your score.
8 - Use technology
Technology has helped us achieve lots of wonderful things, and improving how we manage our money is one of them. Apps can now help you make better budgets, understand your spending and help you save. All of these things will leave you with extra money on the side which you can put towards, you guessed it, clearing your debt.
Start by checking out these apps that can help you get out of debt. Whether it’s changing your current account or setting up an automatic savings bot, use tech in your battle to clear those debts.
9 - Increase your income
Are there ways you can get some extra cash? Whether it’s flogging clothes you never wear or renting out your driveway, starting up a side hustle can bring some much-needed cash in each month. And it’s a lot easier than you think.
Remember ridding yourself of debt is an investment, because of the money you will save on interest charges. If you can plough any extra earnings into paying off your debt it means more cash in your back pocket later down the line.
10 - Get help
It’s great if you can take the advice here and start smashing your debt goals, but not everybody is lucky enough to be in that position. If you feel your debt is slowly spiralling out of control and you’re struggling to meet your repayments each month, it may be time to seek professional help.
If you find yourself in this situation there are two things to remember; don’t panic and you’re not alone. This is a much more common occurrence than people realise and your lenders will have procedures designed to manage you through this situation.
They can also speak to your lenders for you and negotiate a better deal - a great help if you find those sorts of conversations nerve-wracking.
If you start paying less than contractually agreed this will have a negative impact on your credit score. But it is considerably less damaging than the adverse consequences from not keeping up with your commitments, such as CCJs, defaults and missed payments. So it’s best to seek the help you need to prevent this from happening.
Looking for more ways to improve your credit score? Check out these 45 credit score improving facts in our ultimate guide.
Disclaimer: All information and links are correct at the time of publishing.
By Jimmy Coultas
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