7 Practical Ways To Pay off Your Loan
This article is about How to pay off Debt. So, in this article, I am going to tell you about 7 smartest ways to pay off your debt. Today, every trader get stuck in debt due to less information on calculation and less information about financial planning. Here accounts and finance are both different. In reports, you take care of bills, slips, etc. But financial planning is essential for a single person.
Debt is like a sword. It is a weapon. You can use it to cut the enemies, protect your family, or you can use it to cut yourself.
So what you do with it?
There is a two kind of Debt
1. Good Debt
2. Bad Debt
1. Good Debt
Debt is nothing more than the money that you borrow from someone or an institution to perform an activity and that activity can make you more productive or make you a poor.
So if you think about debt in that kind of setting, in that kind of circumstances, reasonable debt, what do I mean by that?
Let’s say good debt is a business loan that you borrow from the bank to expand your business, to buy that new piece of equipment. Maybe to hire more employees to grow your company, to grow your business. That’s good debt, that’s a business loan.
It could be a mortgage that you borrow from the bank to invest in investment property, that’s good debt. Or it could even be a student loan that you borrow from the government.
Now you’re improving your skillsets so that you can deliver more value to the marketplace. That’s also a good debt.
But you notice something?
It’s not so much about the debt. It’s a person that’s borrowing the money. So if any entrepreneur takes money from the bank, and if that entrepreneur is smart and he uses that money to grow his company and generates more revenue than that’s a good debt.
2. Bad Debt
On the other hand, different entrepreneurs, same circumstances, borrow money from the bank. Then makes a lousy investment, bought the wrong piece of equipment or expand too quickly. Now the business starts losing money. Well, it went from good debt to bad debt.
So the worst kind of debt is like car loans, payday loans, credit card debt, personal loan for personal consumptions or even other types of debt that you are borrowing for your pleasure. It doesn’t generate money for you; it doesn’t make you more productive, it makes you weaker — that’ why it is called a bad debt.
7 Smartest Way to Pay Off Your Debt
1. Focus on Increasing Your Revenue, Not Lowering your Debt
I want you to ask yourself a question. Making the money that you’re making right now, how long would it take you to pay off all your debt?
Would it take one month, six months, one year, or 2 years? When you think like it, it’s so overwhelming. How the hell am I going to pay off all those money that you owe?
So it’s unrealistic to think you can be debt free or out of debt with your current income. At least for most people, it’s almost impossible. So what you want to focus on is increasing your revenue so you can pay off that debt faster.
What you need is, it doesn’t matter what it is that you do. You could have a job; you could have a business, it doesn’t matter. But what you need is what I call high-income skill.
A side hustle that you could make money on the side in your spare time is when you’re not at work, when you’re not in your business, to bring more money in so you can pay off that debt faster.
One of my friends is a good employee. He makes about $60,000 a year with his job. But in his spare time, he teaches cricket. So he is a cricket coach. It’s something that he loves. It’s his passion. But he also makes good money by doing this.
So by having high-income skill on the side on top of the $60k that he is bringing in every year, he makes an extra $10,000 a year as a cricket coach. That’s a high-income skill.
Now I want you to imagine this. With whatever you’re making right now, if you could bring an additional income like $1k, $2k or $5k a month without changing what you’re doing, just adding another stream of income, how much faster would you pay off that debt?
So what I mean to say that don’t focus on lowering to your debt only, focus on extra revenue by doing additional work in your spare time. If you do this, you will pay off your debt quickly.
2. Make List of Your Debt By Interest Rate
If you have a loan, then make a list and arrange those loan into ascending or descending order, whether it is a personal loan, a home loan, unsecured loan, a car loan or an education loan. You have to make a list according to the interest rate.
First of all, the loan which has the most significant interest rate, start finishing those loans. Remember one thing that, you do not have to pay the debt interest in equal. Most of the people make a mistake here.
People start paying debt interest in equal to eliminate all debts. And by doing so, it takes a lot of time to repay the debt.
Now let’s see a table below, in which we know who’s debt has a higher interest rate.
|Loan Types||Interest Rate(%)|
What do you understand from the table above?
I listed seven different types of debt whose interest rate is higher. The easiest way is that, clear the loan’s which are highest interest rate first. And pay the EMI with minimum amount whos interest rate lower.
3. Pay Incremental Gain Exponential
Now you have written a table of higher interest rate debt. Next what you will do is start paying the EMI of your higher interest rate debt with the higher amount. You will quickly understand it with the help of a table.
|Parameters||Scenario 1||Scenario 2||Scenario 3|
|Time Taken For Closer||41 Months||13 Months||6 Months|
|Payment||-||2 Times||4 Times|
|Benefit||Nil||3 Times Benefit||7 Times Benefit|
|Total Amount Paid||$20,500||$13,000||$12,000|
So, let’s see all three scenario one by one.
Scenario 1: In scenario one, If you’re paying your EMI amount at regular of $500 for 41 months then you will not get any benefit from this.
Scenario 2: But as scenario two, If you will pay that EMI amount with two times more means $1000, then your EMI will be closed in 13 months only. And your benefit will be three times.
Scenario 3: When you pay your EMI amount at four times more means $2000, then your EMI will be close in only six months, and your benefit will increase by seven times.
Through this table, I want to tell you that if you pay your debt by double amount, you also have a double benefit in it. So make sure you pay off your debt amount as soon as possible.
4. Sell Unnecessary Items
This option can be very helpful if you want to pay off your debt very quickly. If you check in your home, you will find many additional goods that currently you’re not using. Well, the stuff that you have not applied for more than one year, it is useless to understand that stuff.
Now, I want to tell you some examples of thing that will make you easier to find out that useless stuff in your home.
1. Unnecessary Furniture
2. Old Mobile Phones
3. There will be some electronic appliances like TV, Microwave Oven, Heater, bags, desktop or laptops, washing machine, camera, cycle, bike, books, musical instrument, apparels, etc.
After figuring out of those unnecessary goods, sell them online, and then you can be able to pay off your 3-4 months EMI.
5. Evaluate Unnecessary Expenses
This is really very helpful way to pay off your debt. Intelligent people buy appreciating assets and low minded person buy depreciating assets or unnecessary objects. Here you have to evaluate your unnecessary expenses because there are so many people that spent their money on purchasing useless objects.
You can evaluate in like, gratification expenses, dineou† expenses, entertainment expenses, unnecessary monthly subscription expenses, depreciating assets or non-value adding objects.
These are many things that you control for a few months, you can save a lot of money, and you can use it to help you to pay your debts.
6. Pay Off Debt By Second Income
If you are working both you and your wife, then one of you should focus only on repaying the loan, and the other should do it for home expenses. Yes! If you do this, your debt gets paid quickly. Because the entire focus of a person is only to get rid of debt and the other is in-house expenses.
The second solution is that if only one person in the house is going to work and the other keeps working at home, then the person in the house can also plan for some additional income. Here extra income is like freelance photography, content writing, tour guide, part-time teaching, LIC agent, MLM executive, Data entry, Tele calling, etc.
I have written another blog post where I wrote about 12 best part-time jobs that you can work on your spare time. These jobs are straightforward to do for some hour. So this can also be a beneficial option to pay off debt.
7. Keep Emergency Saving Fund
Having a separate savings fund does not require you to take a loan. For this, make independent Emergency Savings Fund, which you can put in the liquid debt fund. You can easily withdraw such funds in 24 to 48 hours.
You can also invest in Equity Fund. Also, you can withdraw money at any time from the equity fund. Therefore, in the liquid fund, you can keep some of your amounts separately so that when necessary it can be taken out and used. So this is also a very good option to pay off debt.
My Final Words
Debt makes a person more miserable. So make sure that you stay away from borrowing. If you take a loan, then try to make a quick payment. I hope this seven smartest ways will help you to pay off your debt. If you like this post, then share with others who are stuck in their debt. Help others by sharing this post for getting rid of debt.