5 sure-fire ways to get out of debt in 2021
As the economy appears to be slowly recovering from the pandemic, we are starting to see evidence that Americans are actively seeking debt repayment. Total outstanding credit card debt fell by $ 108 billion in 2020, according to the New York Federal Reserve.
Many borrowers use tools like a budgeting app that helps manage debt payments to quickly pay off their credit card balance. If you’re ready to take a more aggressive approach to paying off debt and taking control of your finances, consider tips that get the ball rolling.
Here are five tips and effective strategies for getting out of debt:
- Consolidate Debt Through a Balance Transfer
- Prioritize debt
- Refinance private student loans
- Negotiate for a lower interest rate
- Stop accumulating more debt
If you want to get an idea of what debt consolidation loan options are available to you, visit Credible to compare rates and lenders.
1. Debt Consolidation and Credit Card Refinancing
If you have a lot of credit card debt or high interest debt, debt consolidation and credit card refinancing are two strategies that can help control debt payments to pay off debt fast and save you money.
Debt consolidation allows you to combine all of your existing card balances into one low interest personal loan. With a fixed monthly payment, this the loan could make your life easier and your debt.
Credit card refinancing involves using balance transfer credit cards to combat the interest rate. These cards typically offer 0% interest rates for an introductory period of up to 18 months. It’s easier to pay off debt when your interest rate is zero rather than the national average credit card rate of 16.28%.
2. Prioritize debt
When paying off debt, it’s a good idea to follow a proven debt repayment strategy, such as the Debt Avalanche Method or the Debt Snowball Method.
From a financial standpoint, the debt avalanche strategy minimizes the amount of interest you pay and saves you the most money. This is because you pay your highest interest debts first, like your credit card balance, and work your way to your lowest interest accounts.
The debt snowball method works by eliminating your debts in order from smallest to largest. Many of those who thrive on momentum prefer this method because it offers quick wins.
3. Refinancing of private student loans
According to an Experian credit bureau report, the average student debt per consumer is $ 38,792. This means that student loans are Americans’ largest non-housing debt, far more than auto loans and personal loans, at $ 19,703 and $ 16,458 per consumer, respectively.
A private student loan refinance can allow you to benefit from these advantages:
- Save money by getting a loan with a lower interest rate
- Create space in your budget by reducing your monthly payments
- Make financial management easier by consolidating private student loans into one payment
But you should think twice before refinancing federal loans because they usually have low interest rates and repayment plans already. Additionally, refinancing a federal loan can make you ineligible for many government benefits, including loan cancellation (for qualifying loans), income-based repayments, and loan deferrals.
To explore your options, use an online tool like Credible to compare student loan refinancing rates from several lenders at the same time.
4. Negotiate for a lower interest rate
While asking your creditors to lower your interest rate isn’t much of a slam dunk, it happens more often than you might think. If you have excellent credit and a history of on-time payment, your creditors may view your request favorably.
Getting a lower interest rate usually requires friendly – but firm – negotiation with your creditor, who doesn’t want to lose money if you hold your account elsewhere. For example, you can mention that your preference is to keep your card balances where they are so the creditor can lower your rate. If your card issuer believes that the reduction in your interest rate means that your credit card account will remain in place, they may accept your request.
5. Stop accumulating more debt
The first four strategies can help you save money and free up money to pay off debt. However, all of this is of no use if you take on new debt.
If you or your partner barely controlling your credit card spending, curb your temptation by storing all your cards in a secure but hard-to-access place. Another precaution you could take is to freeze your credit reports for free with all three credit bureaus: Equifax, Experian and TransUnion. The freeze will prevent you from incurring new debt since lenders will not be able to access your credit report and issue you a new line of credit.
Remember that interest rates are low right now, which makes this a great time to pay off the debt using a credit card with balance transfer, analyzing your repayment plans, and refinancing private student loans into low-interest options. Visit Credible for the best personal loan rates for debt consolidation or for compare student loan refinancing rates.
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