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Tired of seeing your balance go down so slowly on your credit cards and loans? Learn how you can pay off your debts faster!
Best Strategies to Pay Off your Debt Faster
As I started the Pay off Your Debt Faster series last week with learning how deep your debt is. Hopefully you two have that number and you're ready to get rid of that sooner rather than later.
The good news is that there are numerous ways to pay off your debts, but it can be confusing and overwhelming.
To save you time, I'm just going to list two of the most popular ones that have helped others speed up their debt-free plans to help you find a strategy that works best for you.
Dave Ramsey is most associated with the debt snowball as a part of his system to help people gain financial peace.
Paying off debts is the second of his seven baby steps as popularized in his Total Money Makeover book. Many people have sworn by Ramsey's methods and have paid off huge amounts of debt in a year or two.
Basics of the Debt Snowball
Here's how the debt snowball works:
- List all of your non mortgage debts from small balance to largest
- Pay the minimum payment on every debt
- Figure out how much extra you can put towards paying off your debt
- Use that money to pay down the one with the smallest balance
- When that is paid off, roll over that money into the next debt (old amount +minimum)
- Repeat and keeping rolling over payments until all your debts are gone
Many people have discovered that this method was the easiest to maintain because they only have to focus on one debt at a time. With the intense focus, it made them want to pay off the debt faster.
There are modifications to this plan, such as using debt snowflakes to build your snowball, but the premise remains the same – work on the smallest balance first and then continue to the next smallest.
You may be wondering why interest rates aren't mentioned in this plan. The biggest reason is because the debt snowball is about changing behaviors and not so much on getting the most financially pressing debt out of the way.
Dave states that 80% of personal finance is about behavior not numbers.
While I know this plan is not for everybody, I do believe that many couples could benefit using it. When you see your debts getting knocked out one by one, you ‘re motivated to stick with the plan and that's the real advantage – sustainability.
On the other end of the scale are those who let the numbers rule the strategy. Personal finance gurus like Suze Orman suggest tackling your debt by interest rate rather than the balance.
The reason behind it is straightforward, if you're truly committed to being out of debt, paying your highest rates first will have you debt free faster.
The method is just as direct as the debt snowball – just organize your plan by the interest rate instead of the balance.
Tracking Your Progress
No matter your method, most couples find it helpful to keep tabs on their progress. It can serve as motivation, especially if you have a huge amount to pay off.
Once again I going to mention three handy tools you can use.
Nothing is as customizable as a spreadsheet. There are fantastic ones out there, but my favorite by far is this debt reduction one by Vertex42.
It allows you to plan for both the debt snowball and avalanche. You can run the numbers and compare both and decide which way is best for you.
If you're more an app person, then you'll want to look at Mint.
You can not only create a budget within minutes, you can also add your debt goals to the site.
- To use Mint ’s goal tool, you simply select the goals tab and with the various options, you’ll find paying off debts.
- From there you’ll be guided to customizing your goals.
Mint is even able to track introductory interest rates, which is extremely helpful for those who may have large balance whose repayment will exceed the special intro offer.
Along with monthly emails to track your progress, you can also log-in at any time and see how you’re doing.
Mint can also share tips and offers from other credit cards that may give you better interest rates which may save you some money while paying down your debt.
Tiller – Best of Both Worlds
Do you like the idea of having a completely customizable debt free plan and budget? You should seriously look at Tiller.
Tiller allows you to use spreadsheets to design your debt free plan and your budget in one spot.
They also pull in your data daily so you have a snapshot of your spending, allowing you to adjust your plan as needed.
Tiller also have some fantastic ready-made templates that can keep you on top of your money.
Getting Out of Debt Faster
For those who are debt free, what method worked for you? How much debt did you pay off and how long did it take?
For those still on the journey, how is it going?