Debt: we all hate it right? I know I do! Like, a lot. Like, just as much as I hate Voldemort. So you know I mean business!
When I was in debt it was always on my mind. Even before I got really serious about paying it off it lingered in the back of my mind every time I wanted to spend money. I’ve always been a low income earner and when there’s not that much money to go around you’re mindful of every cent. Any time I spent money on a drink or a book instead of my debt I was a little guilty.
Who can live like that?! It’s crazy! Getting out of debt was the best thing I ever did for myself. When I did get serious about it I got serious about how to make it happen ASAP. These are the three things I did that made the most difference in my payments.
Pick A Method: Avalanche or Snowball
There are two methods that are constantly talked about in debt payoff. That’s because they work! They are similar in the fact that they both tell you to pick one loan and send all your extra money towards that one alone. Don’t divide up extra payments among many loans. That takes longer and you see results slower. By picking one loan and concentrating all your extra payments on that it disappears way faster.
The avalanche method says you should concentrate on the loan with the highest interest rate. This will save you the most money in the long run because you won’t pay as much in interest. The snowball method says you should focus on your smallest balance loan first. You’ll be inspired to keep going by the success and you’ll pay it off sooner.
I’m lucky in that I was actually able to follow both these methods. My highest interest loans also had my smallest balances. It was kind of amazing. I would have chosen the avalanche method though, had this not been the case. At any rate, focusing my extra payments (which ranged from $500-$2000 a month) on one loan at a time meant that I wiped them out way faster than anticipated. What initially looks like a daunting loan balance can quickly come down when you are sending an extra $500 a month it’s way, each and every month!
Lower Your Interest Rates
I had five loans total. Four of them were held by a company that offered an interest rate deduction if you signed up for automatic debit. For years I avoided doing so because I wasn’t sure if I’d always have the money ready in time. When I got serious though, I made a vow to myself that I would make damn sure I had the money ready. I received a .25% interest rate deduction on my four loans within a few hours of signing up.
If your debt payoff process is going to take more than a month to complete I recommend trying to reduce interest rates. The money you save will be money you can send to actually paying off your debt! You can call your loan company and negotiate a lower interest rate if they don’t have a deal. You can consolidate under a lower interest rate as well. There are lots of ways to do it- just ask!
Make Multiple Payments a Month
For the first five months of the year I worked five part time jobs. I coached, catered, worked at a nonprofit, did social media managing and did some freelance writing. It sucked and I don’t recommend it.
However it did mean that I was getting paid at least once a week, every week, throughout the entire month. With careful budgeting for my other needs like rent and food, this pay schedule meant I could make at least four debt payments a month. This frequency was absolutely critical in my debt payoff success.
Why? Student loan interest accrues daily. Every day that went by without me making a payment meant that I was losing money to my interest. Each time I made a payment the interest would reset to zero. If I made a payment once a month I was likely paying $40 in interest. If I made a payment every week I was probably paying $2-$5 in interest. That’s a big difference in interest paid out! If you are curious about how much you can save by adding monthly payments or by paying your student loan sooner, you can use a student loan repayment calculator.
Combine the interest savings of $20-$30 a month with the interest rate reductions with the avalanche method and boom- you have most of the secret to my debt payoff success. Once the stress clears and you can think about how to go about it you may find that debt payoff is actually kind of fun. I did! And now I’m debt free and it’s amazing.
Have you used any of these tips to help you pay off debt?