Did you know the average American is $90,460 in debt? From personal loans to credit cards and student debt to mortgages, millions of people from different generations are drowning in debt or living paycheck-to-pay with no savings. In fact, 25 percent of all Americans have no emergency savings and 16 percent of the population have more debt in 2020.
Is living a debt-free life your priority? Fortunately, there are many things you can do to eliminate debt completely — or pay off most of it — within a year.
How to Pay Off Your Debt in 12 Months or Less
Here are nine strategies to help you get started.
- Increase the amount of money you put into debt repayment
Allocate at least 15 percent of your paycheck — or income from pensions or Social Security — to credit card debt and loans. Bumping up your payments will help you eliminate those obligations faster since most banks or credit card companies only ask you to pay roughly 2 percent of your outstanding balance every month. Making minimum payments means your debt balances are collecting interest each month or year. Paying off large amounts of your total debt within the next few months could save you a lot of money on interest payments alone.
- Use a portion of your savings to pay down larger debts
It’s okay to dip into your savings and use some of your cash reserves to pay down high-interest rate debts. Using some of the money you’ve been saving for debt repayment is a wise decision long-term because you will stop accumulating interest on those large balances. However, don’t run your savings accounts dry. After all, it’s important to have money saved for emergencies and retirement. But if you have funds to spare, use some of that money to pay down and eliminate your debt.
- Pay down debt with your tax refund check
We all understand the temptation to splurge on an expensive item or to go on a luxury vacation with that tax refund check, but consider using the money to pay down some, or all, of the debt that’s taking a considerable amount out of your monthly salary. Just think about the value of reducing or eliminating your monthly payments with one lump sum debt payoff strategy. You will have a lighter debt load for the rest of the year and for years to come rather than enjoying the short-term satisfaction of a single purchase (which you can still buy at another time).
- Cash in your life insurance
Cashing in your life insurance may be a good debt-payment strategy since it gives you a chance to pay off larger amounts of debt faster. If the bills keep piling up and you’re drowning in debt, then it might make sense to use those funds to pay back what you owe, especially if you don’t have any beneficiaries that benefit from your life insurance policy.
Keep in mind, however, that this debt payoff strategy will not work if you have a term life insurance policy. It will only apply if you have a whole life policy that has accrued cash value. Furthermore, even if you do have beneficiaries, there may be a way to tap into part of the cash value of your whole life policy, acquiring money for debt reduction and still leaving some life insurance proceeds to your family members.
- Find ways to make more money
If you’re determined to be debt-free within a year, an effective way to pay off what you owe is to, of course, increase your income. Whether it’s negotiating a raise with your boss or getting a side hustle, start thinking of ways to earn more money and make debt elimination a high priority.
- Apply for a credit card balance transfer
Many of us are guilty of tearing up those credit card balance transfers that arrive in our mail. But applying for a credit card balance transfer can actually maximize your debt reduction efforts. By transferring your high rate debt to a zero percent deal — one that lasts for about 12 months or so — you can get rid of all credit card interest. Freeing up cash flow is the result, which gives you additional funds to pay off your credit card bills. Just remember to read the fine print before signing up to ensure you’re getting that low rate.
- Talk to your credit card issuer about a lower interest rate
Call your creditors to negotiate the possibility of a lower interest rate. You might be surprised how many creditors are willing to reduce your interest rates based on your account standing and payment history.
- Consider filing for bankruptcy to discharge credit card debts
If you’ve exhausted all of your options and have reached a point where your debt is growing far larger than the amount of money you make each month, then filing for bankruptcy may help you rid yourself of debt. Under extreme circumstances — such as having unmanageable credit card and medical bills or you’ve lost your job and have no source of income — a Chapter 7 bankruptcy filing may be appropriate to discharge your credit card bills.
If you feel morally obligated to pay off your debts, Chapter 13 is another viable option, which entails developing a plan to repay all or part of your debt over a three-to-five-year period.
- Sell luxury items for fast cash in Phoenix, Arizona
Put together a list of high-value items that you could sell to us at Biltmore Loan and jewelry in Chandler and Scottsdale, AZ. Earning some extra cash by selling items you no longer use, need, or are ready to part with — and using the proceeds to pay down or eliminate debt — is one of the fastest ways to lighten your debt load. From fine jewelry and designer handbags to watches and artwork, we are happy to purchase most anything you own. Visit us today or complete this online appraisal form to get started on a debt-free life.