Debt management can be stressful if you have multiple loans to repay and the path to financial freedom seems so far away.
This level of uncertainty may cause you to explore ways to speed up the debt repayment process. And while there is nothing inherently wrong with wanting to pay off your debts sooner, trying to accelerate your debt repayments can – if handled poorly – have the opposite effect and push you further into debt.
To help you safely navigate the complexities of debt management, here is what to consider should you decide to speed things up.
Key takeaways
- Paying off your debts sooner can be an effective way to save money and ease your financial concerns.
- Trying to pay off your debts too quickly may limit your ability to save and force you to pay early exit fees.
- Debt consolidation and credit balance transfers are two effective ways to safely pay off your debts faster.
What Does It Mean to Speed Up Your Debt Repayments?
Speeding up your debt repayments means to pay off your debts sooner than the original scheduled end date. Paying off your debts early could save you money. For example, you might pay less interest and fees, as the debts have less time to accrue interest.
There are many ways to speed up the debt repayment process, and the right approach for you depends on your circumstances. The two most common strategies are to adopt the avalanche method or the snowball method.
Avalanche Method
The avalanche method involves paying off debts with the highest monetary value and interest rates first. You stick to your scheduled debt repayment dates, but you also make additional contributions to speed up the process.
The main benefit of the avalanche method is the potential to save money by paying less interest and fees in the long run. However, the downside is that, since you are tackling the highest value debts first, it may take a while before you feel like you are making any progress.
Snowball Method
The snowball method involves paying off debts with the lowest monetary value, regardless of the interest rate of each debt. As you pay off each debt, you work your way up to higher value debts until you pay them all off.
The main benefit of the snowball method is that you get the feeling of satisfaction of paying off your debts faster than the avalanche method. This is because it takes less time to pay off a lower value debt first than it does to pay off a higher value debt first.
However, the downside of the snowball method is that your higher value debts have more time to accrue interest and fees, which could cost you more money in the long run.
What Are the Risks of Trying to Pay Off Your Debts Quickly?
Paying off your debts quickly can be an effective way to save money and work to financial freedom. But there are consequences to taking the wrong approach. Here are a few risks to be aware of.
Paying Off More Than You Can Afford
Avoid making too many extra contributions to your debts. If you do, then you might not have enough savings to deal with last-minute expenses, such as vehicle repair bills or medical bills. As a result, you may need to take out another loan, thus negating the benefits of making extra debt contributions in the first place.
Early Exit Fees
Depending on your contract terms, you may be forced to pay early exit fees. This is often the case if you repay your debts sooner than the original agreement end dates.
The purpose of an early exit fee is to financially protect a creditor (the finance provider). It is designed to make up for the fact that the creditor will receive less profit from the loan, in the form of accrued interest and fees, than what they originally anticipated.
Before you commit to pay off your debts early, make sure that you understand the terms of your credit contract.
You may be able to negotiate with your creditors to remove any early exit fees. Alternatively, a debt management advisor may be able to negotiate on your behalf and show you how to get out of debt in other ways.
How to Pay Off Your Debts Quickly and Safely
A December 2023 report by Finder found that average personal loan debt amount was $6,920 per household, while the average credit card loan debt amount was $3,026 per household.
These kinds of statistics highlight the importance of following best practices when it comes to debt management. Here are a few ways to pay off your debts quickly and keep your budget under control.
Debt Consolidation
Debt consolidation is the process of combining multiple debts into one monthly instalment plan. Instead of juggling multiple debt amounts, creditors, and due dates, you only have to manage one fixed payment on the same date each month.
Aside from streamlining the debt repayment process, a debt management advisor may also be able to negotiate with creditors on your behalf. They may be able to:
- Reduce (or even eliminate) the interest and fees you pay
- Extend the duration of the loan repayment period
- Lower your monthly repayments
You can also use debt consolidation to combine almost any type of debt into one, such as personal loans, credit card loans, and car loans.
Credit Card Balance Transfer
A credit card balance transfer is when you transfer the balance of your existing credit card to a new one. This is often a recommended alternative to credit card debt consolidation strategy.
The purpose of a credit card balance transfer is to enjoy the benefits of a low-to-zero-interest introductory period, which most financial lenders offer. The introductory period typically lasts anywhere from 12 to 24 months.
By switching to a new credit card, you can continue to pay off your existing credit card debt with either a lower or non-existent interest rate. This can help you save money and pay off your debts faster.
Like any debt management strategy, ensure that you understand the terms of the new credit card agreement. Only consider this strategy if you are confident in your ability to pay off your credit card debt before the introductory period is over. Otherwise, you may end up paying more interest than you were before.
Seek Free Independent Advice
Do you have over 15k of debt? At Debt Fix, we offer a range of debt solutions to help save you money, stop creditors from calling, and put you back in control. An obligation-free assessment from us is confidential, free of charge, and it won’t affect your credit rating.
Contact Debt Fix today.
Frequently Asked Questions
Which Debt Management Plan is Right For Me?
That depends on your circumstances. If you are struggling to repay multiple debts and need help, consider talking to a debt management advisor. They may be able to provide you with the clarity and support you need to create a debt management plan.
Does Seeking Debt Relief Help Affect My Credit Rating?
No. Seeking debt relief help does not affect your credit rating. The only time that your credit card rating may suffer is if you fail to comply with the terms of your new debt agreement. For example, if you consistently miss your monthly instalment payments.
What Should I Do If My Circumstances Changing During a New Debt Agreement?
If you are no longer able to meet your monthly instalment repayments due to a change in circumstances, then notify your debt management advisor. They can work with you and your creditors to make a new arrangement.