Building and paying debt is an inevitable part of life. However, sometimes your debt might feel overwhelming. Keeping debt under control can be tricky and getting into debt is very easy to do. It can start with a single credit card debt and quickly turn into a debt avalanche involving multiple cards and personal loans.
Paying down your debt faster can actually save you money in the long run – the quicker you repay a debt; the less time interest has to accrue and as such you will pay less on top of your principal amount and keep your debt under control.
Read on to find out strategies for paying debt fast, from the snowball method and refinancing loans to debt consolidation loans. We’ll share where to seek financial counseling and how to begin budgeting to kickstart your new, financially healthy life.
Let’s get to the following commonly asked questions:
If you’re facing the consequences of bankruptcy, you should seek help from financial counsellors. That said, here are our tips for paying bad debt quickly.
Rule number one is always pay the minimum monthly repayments you can afford. All debt management programs ensure you make the minimum payments to prevent more debt from accumulating.
Important: Even if the total amount you owe seems intimidating, ensure you continue to pay down debt each month.
Secondly, prioritise your multiple debts. For instance, you may have:
Various repayment plans suggest different priorities. Either start with the smallest debt, the loan with the highest interest rate, or whichever feels most urgent to you. Make sure you continue to pay the minimum owed on your other debts.
Thirdly, managing debt means you need to reduce your spending. Unless you find another income stream, you must change your spending habits to pay down your debt.
Close available credit cards to limit spending temptation and set a strict budget. Are there areas you can reduce spending? For instance, if you think you pay too much rent, consider seeking rental assistance.
If you have a savings bank account, you might feel tempted to pay a lump sum towards getting rid of debt. While this will help in the short term, consider the long-term impacts of spending your savings.
Getting out of debt means you need extra money. Consider creating a side hustle, applying for a second job, or investing in shares to boost your income.
While your credit card balance might seem impossible, focus on paying the interest, not the balance. Compounding interest is dangerous for those susceptible to debt; ensure you meet minimum monthly repayments to prevent interest building.
You might often hear the terms ‘snowball’ and ‘avalanche methods.’ decide on a strategy to pay off debt faster. Below, we’ve listed four proven debt repayment plans to build wealth.
The debt snowball method means paying each debt, one by one, from smallest to largest until you have your debt under control.
The debt avalanche method means making minimum payments towards each financial product, with the extra money going towards the debt with the highest interest rate. Here are some ways you can create a debt repayment strategy.
Another way to pay off debt fast is to consolidate your debt. When you consolidate debt, it allows you to pay one monthly payment rather than tracking multiple debts. Speak to a financial professional before consolidating debt to avoid worsening your situation.
Refinancing your debt refers to the act of revising the terms and conditions of a pre-existing credit contract/agreement.
Most commonly, individuals will refinance their credit cards, personal loans or mortgages in order to achieve more favourable terms for their repayment dates, interest rates, or other applicable conditions under the contract.
At the conclusion of the refinancing process, a new contract is drawn up which the lender and borrower sign – replacing any existing credit agreements.
A popular debt repayment strategy to pay off debts fast is to refinance your home loan. Negotiate a lower interest rate to pay off debt faster.
Note: if you have enough home equity on your house, you may consider a reverse mortgage. You can use these funds to pay other debts without touching your savings.
Finally, the simplest of all debt repayment strategies is to make larger payments. If you budget carefully, you can make additional payments towards each debt, paying off your car loan and mortgage faster. Therefore, less interest will accrue.
The most important aspect of refinancing any type of consumer or business debt or personal debt is to speak to a financial advisor to receive independent consultation as well as set up a list of what your goals from the refinance are.
Common goals are to lower the interest rate on a credit product, change the duration of a loan, or switch from a comparison rate mortgage to a fixed-rate mortgage.
The next step for a borrower is to approach their current lender or scout out suitable third parties to discuss their existing contract and what each provider would be comfortable changing in the refinancing negotiations.
WeMoney has an approved list of providers who refinance the credit products of thousands of Australian – all users have access to their application process directly from their app. Check it out today!
Each institution has a different process to engage in refinancing talks — however, it is crucial you discuss your decision with an independent advisor prior to entering into discussions with your lender.
Note: Once you’ve refinanced your existing debt, you will hopefully have a lower interest rate and more favourable terms which will allow you to pay off your debt faster!
To pay off the debts that overwhelm you, you must budget your spending carefully. Moreover, tactical budgeting will help your future financial health and credit scoring.
Saving money might seem challenging while you pay off your credit debt. However, it's not impossible. That's why it's crucial to build an emergency fund to help you should you face financial hardship again.
Consider your personal finance; are there small sums you can put away for the future? An emergency fund will help relieve money anxiety.
To pay off your debt, create an emergency fund and meet your financial goals, it’s best to stick to a budget. If you have tracked your spending and are struggling to stick to a budget, consider the 50, 30, and 20 rule.
Not everyone can fight their way out of debt themselves. If you think you need help, there are plenty of certified counsellors and counselling agencies willing to help you create a debt management plan.
If you work with a debt relief company, they will offer financial advice and education resources and present the risks of payday loans or a debt agreement. Additionally, they will assist you in filing for bankruptcy.
You may have heard about debt consolidation in passing. Someone you know may have gone through the process, or you may have seen an advert online that claims to reduce your monthly payments and save you money in the long term.
But what actually is debt consolidation? What does the process entail? And is it a viable option for me?
These are really important questions you need to ask yourself before using one of WeMoney’s partners to consolidate debt.
When an individual consolidates their debt, they are entering into an agreement with an additional creditor. This provider will close out all of the customers’ existing debts and roll them into a single financial product. The best part, with a single financial product, comes to a single interest rate that applies to the debt.
The benefits of consolidation loans are different for each individual and the type of debt they hold. As always, independent financial advice should be sought before applying for any financial product.
At WeMoney, our team would like to highlight three general benefits of taking out a consolidation loan.
1. Fixed payment terms: Know exactly what’s due and when.
2. A lower interest rate: This depends on your specific circumstances and credit worthiness.
3. A single monthly payment: Some providers may tailor your debt repayment plans to your specific needs. It is worth discussing this with one of our many providers.
Consolidation loans can help save Australians potentially thousands of dollars per year on their debt repayments. Individuals with a healthy credit score will have lower interest rates on their consolidation loans – allowing them to save on interest repayments.
Having a single repayment date, also dramatically reduces the likelihood of accidental default and the fees that can be associated with defaulting and enable you to pay off debt with a lot less stress. If you set up an automatic debit system, taking out a consolidation loan may save you money in the long run by helping you dodge late fees.
Increasing your loan repayment amount or frequency may seem like the most obvious option to pay off debts fast – and that’s because it is.
When an individual increase their repayments the length of the loan can be shortened and as a result, you will pay less interest accrual meaning you can pay off the debts faster.
It’s important to note that you should check your credit products terms and conditions to see if it is possible to increase your repayments. Some providers may not allow this, so we encourage you to speak to a financial advisor prior to doing so.
Use WeMoney’s financial wellness tools to analyse your transaction history and see where you can make cutbacks in order to increase your repayments. Even the smallest extra repayments can make a huge difference in the amount of interest paid.
Dealing with debt may seem challenging, but plenty of strategies and experts are willing to offer financial assistance. When you gain control of your debt and pay the minimum monthly repayments, consider building an emergency fund to prevent future difficulties.
Most people want to pay down their debt faster – follow the strategies listed above and you may be able to start your debt-free journey sooner. Please consult independent financial advice before applying for any credit products through WeMoney’s platform.
Remember, the best thing you can do to repay debt is face it head-on. As tempting as it is, please don't ignore it. Continue to pay the minimum amount and devise a strategy to dig yourself out of debt.
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Disclaimer: The author is not a financial advisor and the information provided is general and was prepared for information purposes only. This information does not consider your investment objectives, particular needs, or financial situation. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for investing, financial or other decisions.