We all want to pay off debt early. But the truth is, it is harder than it looks. The concept is actually simple. However, if you factor in all the temptations, bad financial habits, and the appeal of spending – it can be hard to prioritize paying off your credit obligations.
But if you want to stop living from paycheck to paycheck, you need to consider getting rid of your huge debt balance. The earlier you can pay it off completely, the better it will be for your financial growth. The interest rate is actually costing you the money that could have been used to invest in your net worth. And if your debt is mostly those with high-interest rates, then you are losing more money.
According to reports, American consumers increased their use of credit cards by 9.4%. Admittedly, this should not be too bad – until you read about how the credit card delinquencies are also rising. If people are racking up more card balance and at the same time, unable to pay it off, then you know that the economy is in some deep financial trouble. Experts believe that this should be considered as a warning sign. If we do not stop the trend, we could lose what we have recovered since the last recession happened.
While getting rid of your debt is great, there is one that is even better – paying off debt early.
Tips that will make you pay off debt earlier than scheduled
What makes the use of credit dangerous is the fact that people think of it as the norm. One article revealed how Americans can actually benefit if they are debt-free. They have the option to work less and even retire early. They will have more money to save and even invest. When used properly, the extra money that you will get after you achieve debt freedom can really help you give your financial position a boost.
Here are a couple of things that you can do to help you pay off debt early.
Make extra payments
This is probably the most obvious of all the tips. If you want to pay all your credit obligations earlier than the usual, you need to make bigger payments. This rule is actually a must for credit card debt. You should never pay only the minimum requirement. You have to always pay more than that. If you don’t, you will end up paying the balance off for a very long time. Sometimes, it does not have to be big. You can just add a small amount and it will make a difference because of the interest rate. When you make the extra payment, make sure that you note that you want to “apply to principal”. That will help you save more on the debt as a whole.
Try not to obsess too much on the amount. If there are months that you can only add a small amount, that is okay. But if you can afford to pay more, make sure that happens.
Pay every two weeks
This is actually effective when you have credit card debts. Instead of paying only once a month, you should pay every two weeks. You will end up lowering the interest rate that is being added to your debt through the finance charges. When it comes to mortgage payments, if this is the strategy that you will adapt, you will end up paying one extra mortgage payment every year. Do not worry because this type of payment will not make you pay twice a month. You will simply divide your monthly payments into half and you will pay each half every two weeks. This will make you pay more towards your debt without really putting too much strain on your monthly budget.
Choose a debt relief plan
Finally, an effective way to pay off debt early is to choose the right debt relief plan. Among all the options that you have, debt settlement seems to be the one that can get you out of debt the fastest. It does not matter if you intend to hire a professional or you will do a DIY debt settlement. The process is practically the same. You will basically negotiate with the lender or creditor and offer them a lump sum amount that will cover a smaller amount on your debt. If they accept this settlement amount, they need to agree to forgive whatever will not be covered by the payment. If things go as planned, you can be out of debt in 2 years or so. It all depends on the negotiation process.
Reasons why you should pay your debts early
While it is easy to say that you need to pay off debt early, you need to have a good reason to do it. Admittedly, this will force you to make a lot of sacrifices on your monthly budget. If you do not have the right reason, you might find it hard to motivate yourself to make the necessary sacrifices to pay more towards your debt.
So what are these reasons that you can look into to motivate yourself to pay off debt early?
One of the reasons is retirement. If the time to retire is only a few years away, you want to make sure that you can eliminate your debt before that happens. When you retire, you only have limited finances because you will be relying on a combination of your Social Security benefits and your retirement fund. If you are like the other retirees, it might just be enough to support a simple lifestyle. If you add debt payments, it might no longer be enough for you.
But that is not all, when you get rid of your debts early, regardless of the age, you are increasing the chances of becoming financially independent. This increases the chances of retiring early.
Another reason for you to pay off debt early is a financial goal. For instance, if you want to buy a house, you want to make sure that your chances of getting approved for a low-interest loan will be high. To make that happen, you need to have a good credit score. One of the ways to improve your credit score is to pay debts on time and make your credit utilization lower. There are other financial goals that you can reach easier if you just get rid of your debts.
Save on interest
Most people do not get the significance of being able to save on the interest when they decide to pay off debt early. The faster you pay the principal of your debt, the less interest you have to pay for it. Debts with shorter payment periods usually end up saving you money. So if you can shorten your repayment plan, that would help you save on interest payments.
Finally, you might want to pay off debt early just so you can live a more stress-free life. According to a survey, more than half of Americans who are debt admitted that debt has a negative impact on their life. It is not just their finances that are suffering. The debt is also negatively affecting their relationships, health, and work. If you feel like your debt is causing you a lot of stress, you might want to work on it as fast as you can so you can remove the cause of your anxiety issues. Not having to worry about debt payments can be a welcome relief for those who are constantly on the edge.