Debt is a part of life for Americans, and if kept at a reasonable level, it can allow us to have higher standards of living while growing our economy. But debt can quickly get out of hand. Even if you never buy another thing on credit and you always pay the minimum, your debt will keep growing at an alarming rate because of the interest and fees. It’s in your best interest to get out of debt as quickly as you can. Here are some techniques that really work to get you debt-free fast.
1. Stop making more debt
This is probably the hardest step, but it’s the most important. You may need to rethink your lifestyle and spending choices to start living within your means. If this is hard for you, you may want to look into taking classes or receiving mentorship in personal budgeting. Not only is there a wealth of information online, but there are also non-profit organizations that help people with financial literacy, and many financial institutions like banks are happy to help their customers learn how to budget.
2. “Find” a little extra money to pay down debt
The fact is, you need enough money to pay extra on your debts to get them under control. You may free up some money with lifestyle changes. But if you still don’t have enough, try freelancing or getting a side job. You could sell things on eBay, Craigslist, or at an old-fashioned yard sale. Remember, too, that when you get a bonus or tax refund, don’t spend it all in one place. Dedicate at least a portion to paying down your debt.
3. Negotiate interest rates or balances
Believe it or not, some companies are willing to negotiate. There’s no reason not to try. Credit card companies and vendors are often willing to adjust if they want to keep your future business and they see you have a record of consistent payments.
4. Pay off the highest interest rate first
Pay at least the monthly minimum on every debt. If one debt has interest rates significantly higher than the others, put any remaining money into that debt, because each month it is compounding at a significantly higher rate and getting you deeper into debt faster than the others are. It makes sense to put most of your extra money into paying off this debt first.
5. Pay the lowest balance first
If all your interest rates are in a similar range, a lot of experts advocate paying off the debt with the lowest balance first. This has the positive psychological effect of feeling like you’re making progress. Then, take the money that you were putting into that debt each week and add it to what you’re paying on the next lowest debt. You’ll pay that one off even faster. Follow this with each successive debt without decreasing the amount you’ve allocated to debt-payment each month. This technique is called the “snowball effect” and it really works. But again, if you have a high-interest debt, take care of that one first.
You may be able to get a better interest rate by consolidating all of your debts into one loan or credit card. It would certainly simplify your finances. And some cards offer 0% financing for 18 months. But beware of scams! If it sounds too good to be true, it probably is. Do your research.
What about business debt?
Surprisingly, the principles are exactly the same in business debt, though they may be applied a little differently. Scrutinize your expenses and find out what is draining your income. Review your vendors and either negotiate better rates or find a better price. Tighten your belt until you’ve decreased your debt.
Companies can also “find” money by selling unneeded machines or materials or having a sale.
Consider a consolidation loan. Have your accounting professional help you complete your loan papers to provide the most helpful information to the banks and ensure the best terms.
Talking to an accountant with significant experience in guiding small and mid-sized businesses through budgeting and forecasting will ensure a successful plan of action. If you need help getting ahead on your debt, contact us here at Koelle. We’ve been helping individuals and small-to-mid-sized businesses in the Willow Grove area with their finances for over 30 years.