Is there anyone that actually likes being in debt? Probably not. In fact, getting debt free is most likely a new years resolution for many. A credit card, auto loan, or payday loan payoff can be a great start to getting rid of that nasty debt while starting out the new year with better budgeting habits. With some commitment and discipline, you can get rid of your debt entirely, or at lease most of it, within a year. Here’s how:
*Put at least 15% of your paycheck towards your debt. Credit companies typically ask for only 2% of your balance. Your car payment is fixed but that doesn’t mean you can’t pay more. Your short-term payday loan will have the highest interest so you definitely want to get that paid off as soon as possible. By making only the minimum payment each month, you are accruing interest while not paying down the principal balance. Paying more than the minimum payment each month could save you a significant amount of money just in interest.
*Utilize your savings to pay down debt. It may be difficult to let go of the security your savings brings but when you look at the little amount of interest you are earning on a savings account versus what you are paying on your debt, you will save quite a bit more in the long run by using that savings to pay down your debt. It’s wise to leave something in your emergency fund but if you have the means to pay off your payday loan completely or get rid of those credit card balances, do it!
*Call you creditors to ask for a reduced interest rate. If you are in good standing with them and have a history of making your payments on time, chances are they will reduce your interest rate which will help you pay down your debt faster over the course of the new year and save you quite a bit of money in the long run.
*Take advantage of your tax refund to pay down your debt within the year. While it may be tempting to use that money for something fun or spontaneous, you will find a much bigger benefit by using that money to payoff your short-term loan, put a lump sum towards your car loan, or payoff a credit card completely. It may not sound as exciting as taking a trip or buying that big screen but in the long run you will be giving yourself peace of mind that will last a long time.
*Sell unwanted or unused items for cash. Gather those items that are stuffed in a closet or packed away in a box and are merely sitting there and collecting dust. The general rule is that if you haven’t used it in 3 months, you should get rid of it. Utilize the Internet to sell stuff on Craigslist and eBay or hold a garage sale. Put the cash you make towards paying down your debt. Every little bit counts.
*If you have a whole life insurance policy, consider cashing it in to pay down your debt. This is a viable option if you don’t have beneficiaries that need to benefit from your policy. You may be able to cash in just part of your policy to put towards your debt. If you have a term life insurance policy this won’t be an option for you. This option should be carefully considered, though, only if you feel like you are drowning in debt.
Getting debt-free in the new year is a great goal to have and one that will benefit you for many years to come. Whether it’s via a payday loan payoff, a credit card payoff, or a car loan payoff, you can make the resolution to be debt-free within the year by implementing any or all of the above steps. It’s up to you!