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The Best Way to Get Out of Debt

by Violet WillettJanuary 28, 2021
The Best Way to Get Out of Debt

Finding yourself buried under a mountain of debt can feel overwhelming. In fact, in the third quarter of 2020 alone, the total consumer debt in the US reached $14.3 trillion.

Anyone must strive to get out of debt. After all, it makes getting other loans, like a house or car loan, more difficult. A lender reviews your debt-to-income ratio, which must be 36% or less, to qualify. This can be difficult if you're struggling to pay back loans.

Fortunately, being able to pay off debt is not an impossible feat. Here are some of the best strategies to apply in order to live debt-free as soon as possible.

Strategies to Get Out of Debt

1. Pay more than the minimum

When you settle with paying the minimum amount month after month, it can take forever before you finish off a loan. The quickest way to pay down debt is to add on to your payments as much as you can. This way, you pay beyond interest rates and narrow down the principal amount.

2. Try out the debt snowball method

To start the debt snowball, simply make a list of all the active loans you have. Start from the one with the smallest up to the one with the highest interest. Then, pay off the smallest debt with a higher amount while still maintaining the monthly payments for your other loan. Keep on rolling your snowball of payments until you clear them all out.

3. Get a side job or a part-time gig

If you want to complete your debt payments sooner, one of the best things to do is to increase your source of income. There are many ways to do so, like making a hobby into an income-generating activity. May it be selling baked goods, writing articles, video editing, or dog-sitting, gigs like this can give you extra money for that monthly payment.

Moreover, if you have a few extra hours, you can also get a part-time job. For instance, working delivery, transport, or tutoring can give you some cash to direct to repayments.

4. Consider a debt consolidation loan

One stressful thing about paying off debt is having to keep track of every payment deadline, each interest rate, and other loan information. With debt consolidation, you can combine credit card debt and other loans into one. The best part is that there's a high chance you will get lower interest rates, perfect for trying to zero out that bulky principal.

5. Talk to your credit card issuer and ask for a lower rate

With high-interest rates in most credit cards, trying to zero out your credit card balance can feel like being a hamster on a wheel. If you are someone who has good credit or good payment history, you can try reaching out to your issuer to discuss the possibility of temporarily or permanently giving you a lower interest rate.

6. Apply for a balance transfer credit card

If requesting a lower interest rate doesn't work out, you can reach out to a different credit card company. With a balance transfer card, you can combine all your credit card balances into one card. There are companies that even offer zero interest for a year or so, which could be a huge deal for anyone in a difficult financial situation.

7. Apply for Income-Driven Repayment (IDR) for your student loans

StudentLoan.gov offers a solution to help lower the monthly payment for a student loan. This helps student loan debt become more manageable, as the rates will be based on a person's income or family size.

8. Build an emergency fund

Though you might think saving is counterintuitive when you are looking into getting out of debt, building this type of fund will help you from falling under more debt. After all, having this fund will help you become more financially responsible moving forward.

9. Consult with debt settlement companies

A debt settlement company can help you get a better deal and get your payments reduced. They are third-party representatives that will negotiate on your behalf with the ultimate goal of paying your creditors off. Usually, they pay a lump sum amount to a creditor to settle the loans, but this can entail a negative hit on your credit score.

10. Partner with a credit counseling agency

The world of credit can be confusing and sometimes you just need an expert to guide you through it. A credit counselor can design a debt management plan to finalize the amount you need to pay every month to each of your creditors. If possible, the counseling agency tries to reduce interest or waive fees to lessen the amount you owe.

However, enrolling in programs like this will appear on your credit report and might have an effect on your credit score.

Frequently Asked Questions

How do I get out of debt with no money?

If you have money troubles piling up, you can work on getting out of debt by stopping the use of your credit cards. However, it takes discipline to spend less and keeping expenses within your budget. You can also opt to find a side hustle to get some extra money you can use for some payments.

How do I get out of debt with bad credit?

Having a bad credit score will limit opportunities to deal with debt, as an application for a debt consolidation loan or a balance transfer credit card might not be approved. However, some ways to help settle debt are applying for a co-signed personal loan or getting help through a credit counseling program.

Additional Resources

Consumer Financial Protection Bureau (CFPB)

The CFPB is a U.S. government agency that makes sure banks, lenders, and other financial companies treat consumers fairly. Their website features resources on credit cards, debt collection, student loans, credit reports, and other things.

American Consumer Credit Counseling (ACCC) 

The ACCC is a nonprofit organization, offering confidential consumer credit counseling services to consumers throughout the U.S.

Learn How to Get Rid of Debt with AnyCredit

It can be easy to live a paycheck-t0-paycheck lifestyle and keep chasing debt. However, it is important to remember that there is more to life than this and there is always a way out. A debt-free future might some time to reach but if you stick to the plan, you will surely get there.

For more guidance about credit use, contact AnyCredit today!

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