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Debt is one thing which you don’t like to keep for long. It is always better to have a debt-free life to obtain financial freedom. I will highlight the two methods to get rid of debt in 18 months or less. We believe this is the best way to clear debt fast. By reducing your debt, you no longer have the burden of additional expenses that you pay someone else’s investment return on capital.
How I Paid Off My Debt and Realized the Benefits of Paying Off Student Loans Early
You can pay off your debt in a variety of ways but according to researchers, there are two types of distinct methods of debt management. True debt advice is oftentimes hard to come by and usually persuaded by someone else’s monetary benefit.
At Millionaire Mob, we are focused on providing clear, concise debt advice to help you achieve financial freedom. Financial freedom is the ultimate end goal in personal finance. Imagine a world where your only expenses were things that you wanted. Imagine a lifestyle where you can travel and live freely without being burdened by debt.
I am obsessed with checking my Personal Capital for net worth that every day review my net worth I suddenly had this urgency to pay off my student loans early.
Additionally, I paired up my Personal Capital net worth tracker with a refinance of my loans by using SoFi. I was off to the races with significantly more cash flow and plenty of resources to creatively pay off my student loans.
In our opinion, the best way to clear debt fast is by using two different methods. These methods are the Avalanche Method and the Snowball method. Both are useful methods but depending on your personal choice and situation, you need to find a way which suits you best.
Creative Ways to Pay Off Student Loans
I paid off a number of different student loans in the last 6 months. The below methods will help you pay off your debt in 6 months or less as long as you focus on:
- Increasing your income
- Reducing your spending
- Pay off debt instantly when you receive any form of income
- Attack the highest interest rate debt first
- Prepay your debt with any small income you receive (even if it is only $20!)
Make your savings habitual. Once I started living a frugal lifestyle, saving was easy for me. It ends up being routine.
Keep up your urgency to repay your debt and balance that with savings.
The best way to pay back debt is to stay organized with what debt you have. In order to pay back debt faster, you need to follow our two favorite methods of paying off debt.
These are the debt snowball method and the avalanche method. The first step to pay back debt fast, go into your credit report via a free tool and pull down all of your debts based on interest rate. You need to know your plan of attack to pay back your debt as fast as possible.
How much are you saving from your day job? How much is going to clearing your debts? There are a few resources below that can help you pay back your debt faster.
All you have to do is input the monthly payment that you will seek to make each month, the balance and the interest rate. This will enable you to see when you will be completely debt free based on your payment amount.
Focus on how you can repay your debt for the next two months and nothing else. Once you establish a rhythm your debt will be gone in no time.
My two favorite strategies that help me pay off my debt
These debt repayment strategies should not come as a complete surprise to you, but they are here. These two methods are how I paid off my debt in less than 5 years and bought a house. There are so many benefits to paying off student loans early that it should be top of mind for everyone.
#1 Best Way to Clear Debt Fast: Debt Snowball Method
Use the debt snowball method to clear debt fast. We describe the benefits of the debt snowball method in this section.
In this method, you pay the debt according to their size and not by their interest rate. You pay the smaller debt first which will give you a morale boost and help you stick to the plan and then pay off the higher debt.
The major advantage of this method is that you get to build up the motivation to repay your debts while on the downside you potentially end up paying more in interest.
According to Dave Ramsey, who created the snowball method, “Debt repayment is more about behavior than knowledge”. Debt repayment is not easy to get excited about and one cannot easily put extra money in debt repayment without achieving any results.
As per general human behavior, it is found that we need to get some quick wins in order to stay motivated to pay off the debt completely. This method guarantees instant success and will always make sure you hit your installments on time.
#2 Best Way to Clear Debt Fast: Debt Avalanche Method
Use the debt avalanche method to clear debt fast. We describe the benefits of the debt avalanche method in this section.
In the avalanche method, you first pay off the debt with the higher rate of interest and then pay off the debts in descending order of interest rates. The major advantage of this method is that you end up paying less interest and saving up more money for you.
According to Personal Finance strategies, the avalanche method is the best which it is financially optimal. For example, you have the following situation of debts:
- $10,000 Credit Card, Interest rate 18 %
- $5,000 Car Loan, Interest rate 9%
In the avalanche method, you will pay off your credit card first and then start the car loan, saving a lot of interest in the process.
While in the snowball method, you will be paying off the car loan first and stay motivated to pay off the credit card. This is my favorite method on how to get ride of your debt in 18 months or less.
How I Paid Off My Student Loans
In order to pay back debt faster than you typically would, you need to increase your income. You can either do two things: 1) increase your income without working more, or 2) increase your income by WORKING MORE. I like to do both. I like to build as many income streams as possible that I can use to invest or pay back debt faster.
Here are a few ways to pay back debt faster by increasing your income through different sources of income (a number of these were how I paid off my student loans):
- Sell used clothes on eBay
- Do Craigslist gigs
- Start a freelance consulting business, which will enable you to work for a fixed or hourly rate. This requires no upfront investment!
- (Hint: I think freelancing is one of the best forms of passive income and it has increased my monthly income by over 100%!)
- Sell products on Etsy
- Rent your space on Airbnb
- Sell your travel photography online
- Have a garage sale!
One of the best personal finance bloggers of all-time, Budgets Are Sexy, has compiled a list of 70+ side hustles that you can leverage to increase your income and start paying back your debt faster!
I’m a big proponent of taking side hustle income and repaying as much debt is possible. This helped me repay over $35,000 in student loans in 18 months.
Resources to Creatively Pay Off Your Student Loans
In order to clear debt fast, you need to stay on top of a number of resources to clear your debt. Some sound debt advice includes the following tips:
- Always refinance your debt when it makes sense economically. Can you get a lower interest rate on your debt with minimal or no transaction fees? If the answer is yes, go do it immediately.
- Know how much debt you have to repay and follow your credit score.
- You must establish an emergency savings account to have on hand. If you have any extra cash sitting around, use it to clear debt based on the highest interest rate first.
- Never use a 401k to pay off your student loans. This is not an efficient or creative way to pay off your student loans. This can get you in significant tax trouble and be crushing to your overall net worth.
Here are a few resources for you to use to clear debt fast and efficiently:
- Unbury Me: Unbury Me’s site enable you to calculate when you will be debt free based on your payment amount each month. Just simply input your debt amount, payment and interest rates.
- SoFi Personal Finance: Refinance Your Debt at a Much Lower Rate: Sofi offers extremely competitive rates that will help you get rid of your debt at a much faster rate.
If you have credit card debt and are paying interest on the debt, make sure to use a balance transfer credit card immediately to clear the debt. Oftentimes, a balance transfer credit card will allow you to transfer your balance to a new card and you will now pay interest for a set period of time.
This is an unbelievable benefit that you must use to your advantage as much as possible. A balance transfer credit card enables you to free up significant cash flow.
Here are several other creative ways to pay off your student loans.
Will paying off my student loans help my credit score?
It certainly won’t hurt. I used Credit Sesame to track my credit score over time while I paid off my student loans. This helped tremendously and it is completely free. As I paid off my student loans, I only saw my credit score increase over time. I love how Credit Sesame has free identity theft insurance.
I am now at a credit score of 800+ and can’t wait to try for a perfect score of 850! Here is some credit building advice for millennials to help you get off on the right foot.
I did a complete case study of how I increased my credit score by 200 points.
See Related: How to Pay Off Student Loans on a Teacher’s Salary
Benefits of Paying Off Student Loans Early
Both these methods have their own pros and cons, you should choose the one which suits best to you. You can start with snowball method and then switch to the avalanche method when you have enough motivation developed to pay off your debts effectively.
Once you have repaid your debt try to safeguard your personal finances.
Whichever method you choose, make sure to make your payments on time. Most importantly, generate extra sources of income to put towards your debt repayment.
There are numerous creative ways to pay off your student loan and these are just but a few. Getting rid of debt will help you achieve financial freedom faster. I paid off nearly $70,000 of student loans in less than 5 years.
You can do it too if you have a strategic plan to pay off your student loans by following these simple steps: live frugally, save at least 50% of your income and prepay your highest interest rate debt first.
Some of my favorite benefits of paying off student loans early include:
- Additional freedom to save and take some risks early on in your career.
- After you pay off student loans early, you have significantly more cash flow to save for a house!
- If you can creatively pay off your student loans, you establish a habitual way for saving and everything else is downhill from there… seriously, you pay off your student loans and you will be surprised how easy achieving your financial goals are.
- When I paid off my debts early, I was able to buy a rental property and build a dividend portfolio that I can live off dividends forever. If you are interested in building a dividend portfolio, check out our dividend investing infographic. It will surely help you.
Follow my guide to generate passive income that can be used to repay your debts. Think about the freedoms you will have when you are debt free and you have cleared all of your debt. It will be a magical day. You will be able to travel the world and enjoy the greatest things that life has to offer without being financially strapped to debt.
Once you have repaid your debt, I suggest that you start building a dividend portfolio to ensure that you are continually increasing your income. I love this way to increase my income and realize long-term capital appreciation in the stock market!
As always, I encourage your questions in the comments on the best way to clear debt fast. What do you think is the best way to clear debt fast?
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