The Best Ways to Pay Off Debt Fast
When it comes to reducing debt quickly, there are a variety of ways to approach the problem. What works for one personality might not for another. The most important factor is choosing which method fits your income and lifestyle. With the right approach, it's possible to pay off debt in a short period of time.
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Debt Snowball
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Financial adviser and television personality Dave Ramsey teaches the Debt Snowball method. While acknowledging that math and conventional wisdom seem to indicate that the highest interest debt should be paid off first, Ramsey believes the human psyche works better with a few quick victories under the belt. With that in mind, he suggests listing all your bills in order from least amount owed to most. While making the minimum payments on those that require it, turn all your efforts on paying off the first bill -- the smallest -- on the list. When it's gone, move to the second-lowest amount. Paying the little ones off first creates a feeling of accomplishment and generates the motivation to continue.
Old-Fashioned
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MSN Money suggests a traditional method for reducing debt fast. First, make a debt a priority. Put everything else, except possibly saving for retirement, on the back burner until the debt is gone. Reduce basic living expenses to the lowest level possible. Consider eliminating shopping trips and eating out. Look for creative ways to increase income, like taking a second job, and use all the income to pay off debt.
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Savings
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It hurts, but sometimes cashing out savings accounts to pay off high-interest debt makes financial sense. Consider credit card debt that is at 15 percent or more. Unless your savings account is growing considerably faster than that, you're paying out in credit card interest more than you're receiving in interest earned on savings. That's called a financial hemorrhage. You can always build your savings back up again.
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