Although debt can be a powerful tool when used for good (to better our lives long-term, i.e. mortgage or going to college for a quality degree), it can often be a very negative tool and if not addressed and kept on top of, can really wreck your finances. Especially in our current day and age of the Covid-19 panic, a lot of people are probably worried about their debt. Did you know that the average American has over $38,000 in personal debt? And that’s not including mortgages. That’s a lot of worrying!

It’s not at all uncommon to have: a car payment, student loan(s), some credit card debt, and perhaps a personal loan. These loans can add up and feel insurmountable, especially when the economy isn’t doing so hot. However, people pay off debts all the time and so can you!

Follow these tips on how to wipe out debt so that you can become debt-free.

How to Wipe Out Debt with Debt Consolidation

A lot of time managing debt is tough because you have so much debt in so many places, and it can be tough to track and pay them all. Debt consolidation, sometimes referred to as balance transfer, is when you combine your various loans and debts into one loan. That way, instead of paying small amounts into several different loans each month, you can pay a larger amount to the total amount of your debt. You may also qualify for a lower interest rate, which can help save money in the long-run. One downside may be losing any student loan protections like income based repayment or student loan forgiveness.

There are various parties that offer debt consolidation, and you can use tools like Debt Hunch to find the one that works best for you. They’ll consider the interest rates, your total balance, and other factors to match you with the best debt consolidator. You can read more here about their offer process. 

Try the Snowball Method

The snowball method is one of the most popular methods for paying down debt. If you don’t have the option of consolidating, then you should arrange all of your loans and debts from the lowest balance to the highest. 

Identify your loan with the lowest balance. Find room in your budget to add more than the minimum payment while continuing to pay the minimum amount required on all of your loans. Once you’ve paid the total balance of your smallest loan and closed the account take the amount you were paying into your smallest loan and roll-over that payment to your next smallest amount.

The theory is, that as you pay off each loan, the amount you can pay into the next loan will increase. The trick is you HAVE to roll-over your payment once you’ve paid off a balance. It can be easy to use that money for wants or other things. But if paying off your debt is the goal, then stay on track.

This may not make the most sense from a financial standpoint in saving money over the course of your debt (higher interest rates mean more payments), but it’s a great psychological win to get debt paid off and keeps you hungry throughout the process!

The Avalanche Method

The avalanche method is similar to the snowball method in that once you’ve paid off one loan, you add your payment to the next balance. The difference is in how you prioritize your debts.

The snowball method prioritizes the smallest balances first. The avalanche method says that you should organize your loans from the highest interest rate to the lowest. Beginning with the loan that charges the most interest, you pay off each loan and roll-over the balance to the next.

The benefit of the avalanche method is that you can avoid paying as much interest as possible. The trick here is to stay motivated and focused throughout!

Work That Side Hustle

One of the best ways to increase the money you can use to make monthly payments on loans is to work a side job. But it doesn’t have to be part-time at a retail store.

Consider driving for Uber or Lyft, doing freelance work, being a virtual assistant, babysitting, selling digital art, etc. There are hundreds of ways to make a little extra money on the side! Use the majority of the money you earn from your side hustle to pay extra towards your debt each month. It’ll really motivate you while you work your side hustle!

Re-evaluate Your Budget Wants and Needs

This step is always the hardest, but it’s one of the most important things to do when you’re paying off debt. 

Evaluate your income and your expenses. List each of them out for every month. Include all your debt payments in your expenses column. Once you’re done listing all your reoccurring incomes and expenses, see if any of your expenses fall in a category of “wants NOT needs”. 

As painful as it may be, eliminate any and all of the “wants” expenses that you can and apply that money to your loan payments. 

You Can Do It!

Now that you know how to wipe out debt with these pro-tips it’s time to get started. Don’t get discouraged!

Which method will you use to become debt-free?

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