Debt can feel like a heavy burden, weighing you down and limiting your financial freedom. However, with the right strategies and a commitment to change, you can dig yourself out of debt more quickly than you might think. Here are five effective ways to get out of debt quickly:
How to Get Out of Debt Quickly with 5 Effective Ways?
1. Pay More than the Minimum Payment
You can review your budget to find extra money to pay off a housing loan or personal loan faster. Paying more than the minimum shortens the repayment time and reduces interest. For instance, a ₹15,00,000 personal loan at 10% annual interest with a ₹45,000 monthly payment takes nearly four years to pay off, costing ₹3,50,000 in interest. Increasing the monthly payment to ₹55,000 pays off the loan in under three years, with ₹2,50,000 in interest. Plan these extra payments and ensure they go toward the principal. This method helps reduce the principal balance quickly. Using a loan payment calculator can help with detailed planning.
Also read: How understanding the Rule of 8-4-3 can turn your Rs 30,000 monthly into Rs 1.5 cr?
2. Debt Snowball Method
Try the debt snowball method if you can pay more than the minimum on your debts. Focus on paying off all your debts, but only make minimum payments on the largest ones. For example, if you owe ₹1,00,000 on an auto loan, ₹10,00,000 in college loans, and ₹5,00,000 on your credit card, pay off the auto loan first. This method helps you stay motivated by quickly eliminating smaller debts. However, avoid this method if you have high-interest loans like payday or title loans—these should be paid off first. Start by listing your debts from smallest to largest and pay extra on the smallest balance first.
3. Commit Windfalls to Debt
Using unexpected money to pay off debt can help you make faster progress. Unexpected money, like a bonus, incentive, or tax refund, is referred to as a windfall. Instead of saving or spending it, use windfalls to pay off debt. You can use half of it for fun and the other half for debt repayment, or even allocate the full amount to debt clearing. Cash gifts, incentives, bonuses, and inheritances can also accelerate debt repayment. Every little bit counts toward your debt repayment goals. Decide how to use the funds and use them to pay off your debt quickly.
Also read: How to Make 1 Crore in 10 Years by SIP?
4. Re-examine Your Budget
The best ways to pay off debt faster are by earning more or spending less. If earning more isn’t an option, focus on spending less to free up money for debt payments. Review your spending, separate needs from wants, and find areas to cut back. Use these savings to make larger debt payments. Adjust your spending plan to prioritize debt repayment, and list “debt repayment funds” in your monthly budget. By cutting expenses and redirecting savings, you can speed up your debt repayment.
5. Refinance your Debt
You can speed up payments and save money by refinancing your home loan or personal loan at a lower interest rate. For example, refinancing your home loan can reduce your monthly payments and overall interest costs. Similarly, consolidating multiple personal loans into one loan with a lower interest rate can simplify your payments and save money. Explore your refinancing options and get pre-approved at the best rate. This can help you manage your debt more efficiently and pay it off faster.
Also read: What is the Rule of 72 and How to use it to Double your Wealth?
Wrapping up
Getting out of debt quickly requires a combination of budgeting, strategic debt repayment, income generation, and discipline. By following these five strategies, you can take control of your finances and work towards a debt-free future. Remember, the key to success is consistency and commitment. Stay focused on your goals, and you’ll be on your way to financial freedom in no time.
Also read: 10 Mutual Funds That Doubled Wealth In 5 Years
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FAQs
How can I escape my debt fast?
Using the snowball method, method involves focusing on your smallest debt first. Once it’s paid off, use the money you were paying on it to deal with the next smallest debt. Continue this process until all debts are cleared. This approach helps build regularity and keeps you motivated as you pay off each balance.
How to clear 1 crore debt?
Debt consolidation involves combining all your debts into a single loan, often secured against property. For example, you might get a loan of Rs. 10.50 crore or more, if eligible, to pay off all your existing debts at once. This can simplify repayment and make it more affordable.
How to stop borrowing money?
You can avoid borrowing money if you have:
- Build an Emergency Fund.
- Create a Budget and Stick to It.
- Develop a Savings Habit.
- Keep Track of Your Bills.
- Pay Your Credit Card Bill in Full Each Month.
- Only Borrow What You Need.
- Maintain a Good Credit Score.
- Use Caution With Buy Now, Pay Later Plans.
How much debt is allowed?
Your debt-to-income ratio compares your monthly debt payments to your gross monthly income (before taxes) as a percentage. A healthy ratio is 36% or less. If your ratio is above 43%, it means you have too much debt.
