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Having a mountain of debt is one of the most crippling things that a person can suffer. Unfortunately, according to Statista, millennials are one of the most debt-stricken generations out there.
Gen Zers, while currently being further down on the debt scale, have had the least amount of time to accumulate debt. As such, according to current trends, there's a good chance they'll follow in their millennial predecessors' footsteps and fall into stifling debt.
However, whether you're a millennial, Gen Z, Gen X, or any other generation, nobody wants to be drowning in debt. Therefore, it's important to implement the strategies in this article so that you can accelerate your debt payoff journey and gain financial freedom.
The best way to pay off debt as quickly as possible is to create a budget and stick to it. Budgets are designed to tell you where you're spending money, how much you're spending, and where you can save. While creating and sticking to a budget will restrict some of your spending, that's likely why you're in debt in the first place!
Creating a budget will also tell you how much debt you have and how much disposable income you have available to aggressively pay it off. In addition to making debt repayment easier, having a budget will benefit you for years to come and may prevent you from falling into debt again.
The key to a successful budget is knowing where every dollar is going. Also known as a zero-based budget, having every dollar earmarked will prevent overspending and help you stay on track with your debt repayment plan.
If you choose to go this route in the hopes of paying off your debt faster, here's what your budget should include:
Every single dollar you spend throughout the month should have a spot on your monthly budget.
Creating a budget and tracking your spending is a lot of work, and it's tough to do manually on your own. If you're having trouble, there are plenty of great budgeting apps that can help. These apps will help you create a personal budget, track your spending, and input every expense so know exactly where your money is going.
Here are a few of the best budgeting apps around:
Once you create a budget and know exactly how much money you have to throw at your debts, it's time to prioritize which debts you want to pay off first.
One of the most common ways to pay your debts off quickly is to prioritize paying off high-interest debt first. High-interest debts, which include credit card debt, student loans, and mortgages, are the hardest types of debt to pay off. This is because a big chunk of your monthly payments goes toward the debt interest rather than to the debt itself.
Take a typical mortgage, for example. Depending on the terms of your loan, it's not uncommon for up to half of your mortgage payment to go towards interest. That means that only half of your payment goes towards paying off the house itself. Using this example, if you buy a house for $200,000, you will end up paying closer to $400,000 for it by the time you pay off the entire mortgage.
However, by paying extra money on top of your minimum payments, you can pay directly toward the principal and get rid of your debt faster. Paying extra will also result in paying less towards interest, which means less money spent overall.
Another good option is to use the debt snowball method. As opposed to the debt avalanche method above, the debt snowball method is where you start by paying off your smallest balance first. You'll build momentum towards repaying larger debts by paying off one small debt after another.
It's important that you continue making minimum payments on all your other debts while focusing on eliminating one debt at a time. That way, you don't pile up late fees and end up getting into more financial trouble than when you started.
The key to making the debt snowball method work is to determine how much total money you have available for debt payments. Then, subtract as much money as you need to for minimum payments on all your debt, including your smallest balance.
Next, any debt repayment money that's left over goes toward that smallest debt. Once the debt is paid off, you continue paying the same amount of money towards your debts as before. However, all the money that would have gone towards the debt you just paid off now goes towards the next largest debt. You continue this trend until you're debt-free!
In addition to having lots of debt, having multiple debts from multiple lenders is also common. Whether it's student loans coupled with credit card balances, personal loans, or a car payment, keeping track of all your debts and making the necessary monthly payments can be challenging.
That's where debt consolidation loans come in. A debt consolidation loan is where a lender buys all your existing debts and pays them off. Then, since all your debts are owned by the same person or company, you only need to worry about paying them back.
Debt consolidation can simplify debt management and result in lower interest rates. This can make the overall repayment process faster, easier, and cheaper than paying each debt off individually.
While you're using one of the aforementioned debt repayment plans, you can also pursue debt relief options. Debt relief may be available through organizations, such as National Debt Relief, Accredited Debt Relief, and others. Each organization will have its own requirements for qualification and may offer additional options, such as debt consolidation loans.
Another option is to talk directly to your lender and work with them to reach a settlement agreement. This is especially helpful with certain types of debt, such as medical bills, money you owe your lawyer, or personal loans. If your lender knows you will never be able to completely repay them, they may settle for a smaller amount that you can repay quickly.
While lenders aren't required to settle loans with you, it never hurts to ask. It may be worth getting a financial advisor involved to see if you qualify for debt relief programs or to help negotiate a settlement on your behalf.
Lastly, increasing your income is another good way to pay off debt faster. You can save money and budget all you want, but if you simply don't have enough discretionary income, you'll have a hard time making headway on your debts.
From full-time to part-time side hustles, the gig economy is more popular than ever. A big reason for this is all the new remote and online working opportunities that have become available. From freelance writing to web design and everything in between, the opportunities are numerous!
Another solid side hustle to consider is working part-time for a transportation company or food or grocery delivery service. Doordash, Uber, Shipt, Instacart, Lyft, Grubhub, and similar companies allow you to create your own hours and work as much or as little as you want to. It's the perfect side gig!
While any financial investor worth their salt will tell you that investing is essential for your financial future, it may not be the smartest move if you're drowning in debt. In fact, in addition to putting a pause on actively contributing to investments, you should consider liquidating some of them to pay off your debt.
However, pulling your investments is a big decision and one that you shouldn't take lightly. Therefore, talk to a financially savvy person before going this route to make sure it's the best option for you.
If you don't want to mess with your investment portfolio and don't have time for a side hustle, you can always sell your belongings. From eBay to Facebook Marketplace to Poshmark, there are plenty of websites specifically for selling secondhand items.
Simply go through your closet, garage, storage shed, and anywhere else you keep your belongings and see if there are things you can part with. Anything you don't use or need could be a great way to make some extra money that you can put toward paying off your debts.
In addition to weighing you down financially, having a lot of debt can also take a psychological toll on people. As such, paying it off as quickly as possible is a good goal to have and one that will make your life a lot easier. By using the tips and ideas in this article, you'll be well on your way to being debt-free and one step closer to financial freedom.
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