It’s increasingly common to see people make poor financial decisions and accumulate high levels of debt nowadays. If you’re at a loss on how to pay off debt, we’re here to help!
Read on to discover seven proven strategies you can implement to quickly pay off your debt and what you should consider before refinancing to regain control of your finances.
How to Pay Off Debt Quickly
1. Plan a Budget
Planning a budget is the first and most important step on your journey toward getting out of debt. A well-planned budget will help you track your income and expenses closely.
There are countless pre-made budget worksheets you can use to key in information for free. Alternatively, you can subscribe to a service that can import your financial data on a regular basis.
2. Pay Off the Most Expensive Debt First
Also known as the “debt avalanche” method, this tried-and-tested strategy on how to pay off debt involves clearing your most expensive debt first.
Since your most expensive loan is the one with the highest interest rate, paying it off first will reduce the overall interest paid, decreasing your overall debt.
Of course, you still have to pay the minimum for the less expensive debts as you channel extra cash to settle your most expensive debt.
3. Pay Off the Smallest Debt First
Depending on your financial situation, it might be more feasible to settle the smallest debt first.
Using the “snowball” method, you can work your way up to the largest debt, building momentum as you check each debt off the list.
4. Pay More Than Minimum
Some banks allow you to make additional payments toward the principal loan amount every month.
For example, if you pay an additional RM500 above the minimum repayment amount consistently, you can pay off your debt in no time.
However, you may need to pay additional fees or be subjected to penalties for paying more than the minimum amount. So it’s better to check the terms of your loan before you proceed.
5. Earn Side Income
Another great way to clear your debt is to supplement your income with a side hustle. Moreover, in this era where everything is digital, you can even earn extra cash without ever leaving your home.
Online tutor, virtual assistant, and freelance copywriter are just a few of the long list of WFH roles you could take up to expedite the process of paying off your debts.
6. Consider Debt Consolidation
If you’re still unsure about how to pay off debt faster, debt consolidation could be the answer to your debt problems. This process involves combining a few high-interest rate loans or credit card debts (link to ‘Credit Card Debt’ article) into one new monthly loan.
Many people consolidate their debts, as it usually leads to lower interest rates and better repayment plans.
Additionally, debt consolidation keeps you from building up new debt, and the potentially lower interest rate will save you some money each month.
7. Change Spending Habits
The key to truly getting out of debt is to maintain good money habits. Hence, you need to identify the root causes of your financial issues. Besides having a solid budget to track your expenses, you should also take time to understand your spending triggers.
How Does Refinancing to Pay Off Debt Work
A cash-out refinance allows homeowners to acquire the cash they need to settle their debt as fast as possible. Essentially, you get to pay off your old mortgage using a new one with a higher loan amount.
Your new mortgage is determined based on your home’s current value. After deducting the balance you owe from your old mortgage, you can cash out on the remaining amount.
That said, there are things you should consider before refinancing your mortgage to ensure the best possible outcome.
What to Consider Before Refinancing to Pay Off Debt
1. Evaluate Your Existing Commitments
The first thing you need to do before refinancing is to understand your financial status by calculating your Debt-to-Income Ratio.
While refinancing can give you cash to settle outstanding bills, it is still a loan. If you don’t have any means to increase your financial status, the last thing you want to do is take on additional debt that you can never repay.
2. Do You Have Enough Equity
Your home’s equity is how much your home is currently worth in the market after deducting what you owe on your mortgage. It increases when you make payments to your mortgage or when its value appreciates over time.
As a rule of thumb, you should have at least 40% equity in your property to be eligible for refinancing. There is no point in refinancing if your equity is any less than that or if your home’s value has depreciated from the time you bought it.
Plus, you also need to consider the legal fees that may reduce your gross cash-out earned from refinancing.
3. Can You Afford Mortgage Repayments
When you opt for a cash-out refinance, you could potentially be increasing your mortgage repayments simply because you are borrowing more.
Even if you scored a lower interest rate, the increased monthly repayments could be hard to keep up with.
Hence, you should make sure that you can afford the monthly repayments before considering refinancing as an option to pay off debt.
4. Find a Suitable Bank
It’s possible to refinance your mortgage with your current bank. They already have your information and may offer you good deals to keep you with them.
However, it’s a good idea to browse around and compare the different interest rates, terms, and packages of all available banks before you make a final decision.
How Bluebricks Can Help You
Finding the right bank that will approve your refinancing loan application can be quite tricky. Even homeowners with very good credit scores may be rejected for all sorts of reasons. But don’t worry, as Bluebricks is here to help.
Our loan specialists can guide you throughout your entire application process to ensure you receive the cash-out required to settle your debts in the quickest way possible. We are highly experienced in helping clients overcome their financial challenges through refinancing.
See how Bluebricks helped a desperate client pay off the RM50,000 debt she owed to loan sharks by securing a mortgage refinancing loan approval.
Leading Loan Agency Company in Malaysia
Bluebricks is a professional financial consultancy company with years of experience providing loan consultancy and loan rejected services in Malaysia.
We offer FREE consultations, CTOS and CCRIS reports for those submitting an application for the first time. No upfront fees for Bluebricks services will be charged until your loan is secured. Engage our services to clear your debt and reach your financial goal faster.
Loan Rejected Services
As a leading loan rejected service provider, Bluebricks offers comprehensive refinancing loan rejected services. We help clients pinpoint the underlying reasons why their loan applications were rejected and apply the necessary strategies to increase their chances of approval.
With our extensive experience and expertise, we are confident that we can find a solution to your loan application problems. Discover how our refinancing loan rejected services can help you with your current or future loan applications.
How to Pay Off Debt – FAQs
Finding a solution to pay off your debts can be overwhelming. We believe that having the right tools and knowledge can make the process easier. So, here is a list of the top questions about how to pay off debt that you may find useful.
Paying off debts can help improve credit scores. Furthermore, you can direct your full attention to saving and achieving other financial goals once your debt is paid.
If you are experiencing emotional or mental stress due to piling debts, actively finding a solution to pay off your debts can restore peace of mind.
Besides poor money management, a person can fall into debt from living an expensive lifestyle, having children, or moving into a new house.
Furthermore, individuals spending too much ahead of their good cash flow forecast, over-investing and expanding their business too quickly may find themselves in serious financial difficulty.
In such cases, refinancing can be a good option to explore to better manage finances and clear urgent debts.
Credit cards have higher interest rates than car loans, so it’s better to pay off debt for your credit card first.