2016 may be a year of saving for me, but for a lot of you, 2016 will be the year you pay off debt. One reader even shared that in 2016 she is switching her focus from saving for a house down payment to paying off her car loan. I was so happy to hear that because I firmly believe paying off your debt is the single greatest thing you can do to improve your financial situation.
I spent two years paying off $38,000 worth of debt, and I learned a thing or two along the way. Here are my top five tips to supercharge your debt repayment this year:
Reduce the Interest Rates on Your Debt
If you’re midway through your debt repayment journey, you’ve probably already gone through most of the steps of reducing your loan’s principle. You’ve probably looked at consolidation, loan forgiveness, and reducing your interest rates.
But when the new year rolled around, so did your opportunity to take another look at the available options. Look for new credit card balance transfer options and don’t hesitate to call your loan provider and ask for a lower interest rate – the worst thing that could happen is that they’ll say no.
Get a Spreadsheet for Your Debt
Nothing focuses your debt repayment journey quite like a debt repayment spreadsheet. Knowing exactly when you’ll be debt-free and the exact effect that $50 extra payment will have on your debt free date will jump start your motivation to pay off debt in 2016 – guaranteed!
Make Your Debt a Bill
If you want to pay off debt quickly, you need to remove the barriers to making extra payments. The easiest way to make extra payments on your debt is to set up your student loans or car loan as a payee on your online banking. This way, every time you have an extra $10 lying around in your chequing account – don’t think – just make a payment. By reducing the barriers, you’ll make more payments. Those small payments will add up over time.
Automate Your Debt
On a similar note, if you’ve budgeted for extra payments on your debt after every pay day, why not set up an automatic withdrawal from your chequing account? That way you won’t be able to get cold feet and decide to spend this week’s extra payment. Automated payments remove your willpower (or lack thereof) from the equation.
Save a Little for Emergencies and Retirement
If you’ve got more than six months left on your debt repayment journey before you are debt free, you ought to have a small emergency fund. Ignoring savings in favour of paying off debt is admirable, but it will leave you vulnerable to even minor emergencies.
Do yourself a favour and start saving for a $2,000 – $5,000 emergency fund. When you’re done with that, start putting away $50 per month for retirement. These two simple steps will help you stay on the debt-repayment wagon for the long term.
Publically Declare Your Intentions to Pay Off Debt
It’s a new year, and everyone is taking to Facebook to declare their resolutions publically. Why not be one of those people? I’ve always maintained that declaring your intentions publically and following up on them throughout the year has been my greatest motivator to pay off debt, save a $10,000 emergency fund and now for saving a $35,000 house down payment fund. I don’t want to disappoint you, so I work extra hard at my goals. If no one knew about them I’d be tempted to take the easy route halfway through the year and give up on them.
If you’re a debt repayment veteran, share your tips on paying off debt below!
Photo Credit: edenpictures