Debt Free in One Year? 10 steps and strategies to pay off debt – Forbes Advisor
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Like many other Americans, you may be focused on saving money and getting out of debt. But eliminating debt doesn’t happen overnight, especially if you are working to get out of debt on a lower income. Developing a debt reduction plan can help increase your chances of success, especially if you set a deadline for reaching your goal.
Start with 12 months. What progress can you make to reduce your debt over the next year? Here are some simple steps and strategies you can use today to help you reduce your debt and hopefully get rid of your debt.
1. Save more on your budget
Start by taking a close look at your monthly expenses. Consider using a budget tracker app to understand where every dollar is going. Some of the best budgeting apps are free or charge a low monthly fee after a free trial period. Use these apps to find opportunities to cut expenses and spend more money on debt elimination.
Even small cuts in spending can add up quickly. For example, if you can find $ 200 in expenses that you can reduce from your typical monthly budget, after 12 months you would have $ 2,400 to spend on your debts.
2. Automate your debt payments
Savvy savers automate their savings. If you want to get rid of your debt, try using these tools and techniques to put your debt payment on autopilot:
- Use automatic transfers from your bank account to your credit card.
- Use a calendar or automated reminders to track payment due dates, especially if you’re paying off multiple credit cards or debts at once.
- Use a debt management app, budgeting app, or your bank or credit union‘s built-in online tools to track your debt repayment progress.
3. Adopt a debt repayment strategy
Two strategies for paying off debt are the snowball and the debt avalanche methods. Here’s what these methods look like:
- Debt snowball. With this method, you start by paying off your smallest debt first while making the minimum payments on your other debts. Then you move on to the next smallest debt. This will give you a feeling of momentum that builds up over time, like a âsnowballâ rolling downhill.
- Debt avalanche. With this method, you start by paying off the debt at the highest interest rate first while making minimum payments on all other debts. Then you start paying off the next highest interest rate debt. You can pay less interest over time by eliminating higher interest debt first.
While the debt avalanche strategy can help you save money on interest, you might prefer the sense of accomplishment that the snowball method gives you when you pay off the small ones first. debts. Whichever method works for you, the bottom line is the bottom line: getting rid of your debt.
4. Apply for a balance transfer credit card
If you have a good credit rating and have one or more credit card balances with high APRs, you may want to consider applying for a credit card with balance transfer. Some balance transfer credit cards offer 0% APR on the balance transfer amount for an introductory period of a specified number of months. This allows you to open a new credit card account at a lower introductory interest rate.
A credit card with balance transfer doesn’t eliminate your debt, but it does allow you to pay off your debt at a much lower interest rate, or 0%, for a specified period of time. Lowering your APR can help you pay off your debt faster. However, be sure to read the fine print. Be aware of the balance transfer fees and be sure to pay off your balance before the introductory rate period ends.
5. Consider a debt consolidation loan
You may be able to get a better deal to pay off your credit card debt or other debt by combining those debts into a new loan. This is called a debt consolidation loan. To get a consolidation loan, you will usually need fair or better credit.
Similar to a balance transfer card, the best debt consolidation loans offer a lower APR on your debt, helping you save money on interest and pay off debt faster. With both a balance transfer card and a personal loan, the challenge is not to take on additional debt while you pay off the card or consolidation loan.
6. Pay off debt with mortgage refinance with withdrawal
If you own your home, have sufficient equity, and are eligible to refinance your mortgage at a lower interest rate, you may want to consider refinancing with cash. This allows you to refinance your mortgage in a way that frees up money on your home equity, allowing you to spend that money on other goals, like paying off high interest debt. .
Think of a refinance with withdrawal like a debt consolidation loan that you give to yourself. Say, for example, you have $ 20,000 in credit card debt with an APR of 20%. You may be able to get cash refinance and pay off your credit card debt. It could be a good financial move to help save money on interest and get out of debt faster. Remember, however, that your home is the collateral for this loan.
7. Earn extra money with a side business
Earning extra income, naturally, can help you pay off your debt faster. Consider devoting some free time each week to earn extra income. This of course depends on your professional situation, your skills and the free time you have outside of work. But whether you’re taking extra hours at work, taking a part-time job, or starting a lucrative sideline, there are plenty of options for making some extra cash.
For example, if you could earn $ 500 more per month, in 12 months you would be able to pay off an additional debt of $ 6,000.
8. Get consumer credit counseling
If you’re struggling to pay your bills and are behind on your debt, consider talking to a consumer credit counseling service. These agencies, which are often nonprofits, can help you take a closer look at your budget and spending and create a debt management plan to help you pay off your debt faster. These agencies can also work directly with your lenders to potentially help you save money on interest and fees.
If you’re feeling overwhelmed with debt and don’t want to file for bankruptcy, consumer credit counseling services can help get you back on track.
9. Ask to renegotiate debts
If you’ve fallen behind in paying off your debts, one option is to seek debt relief by asking your creditors to renegotiate your debts and agree to a repayment that is less than the amount you owe. This is called debt settlement. You can attempt debt settlement negotiations on your own or you can hire a debt settlement company. Debt settlement companies work with your creditors for you in exchange for fees, usually a percentage of the amount of the debt settled.
Debt settlement can be risky and costly. As such, it is generally seen as an option of last resort. There is no guarantee that a creditor will accept a payment for less than the amount you owe. And the process of becoming past due on your debts can cause serious damage to your credit score.
10. Give up your debts by declaring bankruptcy
When the debts have become overwhelming and you don’t see a reasonable way forward, declaring bankruptcy may be an option. Bankruptcy can help you clear your debts, creating a fresh start so you can rebuild your finances.
However, keep in mind that bankruptcy will cause serious damage to your credit score. Also, not all debts can be discharged in bankruptcy – it depends on your overall financial situation and whether you are filing for Chapter 7 or Chapter 13 bankruptcy. You may also need to agree to a repayment plan ordered by the bankruptcy. court for some of your debts.
Creating a plan to eliminate debt can provide a debt repayment schedule and help you lower your current monthly expenses. It can also help you decide which methods can help you save money on interest and make the most progress on paying off debt faster. If your debt has become too stressful and you’re feeling stuck, you may want to consider some form of debt relief to get some extra help with your bills.
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