How to get out of debt faster
Many people wonder how to pay off their debts faster when they ask for debt help. There are a few methods proven to get your debt to disappear, but they take some planning. Here’s two of the most frequently used methods:
Humans like success. It motivates us. The snowball method, often encouraged by debt gurus such as Dave Ramsey, is a popular method to help get your debt under control. The first step is to list your accounts, such as credit cards and bills, from smallest to largest. Starting with the largest bill, allocate your payment to each account, but only pay the minimum. Anything left over can be paid to reduce the smallest debt. By using the snowball method, you’ll feel like you are paying off your debts faster, as the number of different accounts will decrease fairly quickly.
For example, if you owed:
- $1,000 credit card with a $50 minimum payment (19.99% interest);
- $200 overdraft with a $50 minimum payment (21.99% interest); and
- $75 late fee with a $25 minimum payment (0% interest)
If you have $175 each month to pay toward your debt, in the first month, you’d pay as follows:
- $50 to the credit card;
- $50 to the overdraft;
- $75 to the late fee
Your first debt would be paid off! Good for you!
The next month, you’d again pay the credit card $50, and now your payment to the overdraft would be $125. By the third month, you’ll only have one account left. The key to using this method to pay off debts is to make your plan and stick to it. As a result, you’ll see regular progress as each account gets paid off, and you’ll be motivated to continue.
Using the Avalanche method to pay off debt involves making minimum payments on all the different accounts and using any remaining money to pay off the debt with the highest balance. So, with the same figures as above, your first month’s payment would be allocated as follows:
- $50 to the credit card;
- $50 to the overdraft PLUS the extra payment of $50, for a total of $100;
- $25 to the late fee.
This method will decrease the amount you pay in total, and save you in interest costs, by eliminating the highest rate balances first. As with the snowball method, planning is key to help you reduce your debt faster.
If you find that you have tried to get your debt under control, and instead you find it’s controlling you, contact us. In Canada, debt help can be found by consulting with a Licensed Insolvency Trustee. In Manitoba, NWT and the Yukon, you can contact us to ask your debt questions. Aren’t sure if there’s an LIT in your area? Consult the Canadian Licensed Insolvency Trustee Directory here.