Debt is ubiquitous in American society. The average student loan balance has reached more than $31,000 as of 2019. At a 5% interest rate, this would cost a borrower nearly $1,600 in interest in the first year. Additionally, the average American household has a credit card balance of more than $9,000.
Even at a relatively low credit card interest rate of 10%, the annual interest payment would be more than $900 in the first year. Those who combine the average student loan with the average credit card could be paying more than $200 a month in interest costs alone. This number doesn’t even count the principle that would get paid down in the process. Getting rid of debt can be a great way to free up your income, and here are some great options for slashing that financial burden.
Get a Side Hustle
The current economy is frequently known as the gig economy. People are always looking for ways to make money on the side. Whether your primary job is a full-time job with benefits or you’ve cobbled together a few part-time jobs that barely allow you to make ends meet, there are ways to make money in your spare time.
If you’re good with marketing, you could solicit small businesses and offer to run Facebook ad programs for them. If you write well, you could find clients to write for. You could also take advantage of apps like Uber or Lyft that allow people to make money driving others from one point to another. These options could easily provide you with a few hundred dollars of extra income each and every month. As long as your primary job provides enough to pay off your regular bills, you could use this additional money to pay down balances.
Refinance Student Loans and Other Debt
Refinancing your existing debt can be a great way to accelerate your payoff schedule. If you’re able to cut your interest rate, you can leave your payments at their current level and pay off more of the principle in a shorter amount of time. If you’re in credit card trouble, cutting your interest rate could be as simple as making a call and asking the bank to cut your rate. You could also open another card that offers a 0% introductory interest rate on balance transfers.
If you can refinance your student loans, you may be able to consolidate the number of bills you pay each month while also reducing your interest rate and overall monthly payment. By simply maintaining the payments you were making previously, you should be able to cut months years off of your student loan sentence.
Use the Snowball Method
While paying off your obligations that have the highest interest rates first makes mathematical sense, few people are able to stay motivated to do so. Many financial experts recommend paying off your smaller debts first. This will allow you to roll those payments into your larger debts.
As you pay off some of the debts quickly, you’re more likely to remain motivated to pay off the smaller debts and build momentum. Additionally, if you have fewer payments to make each month, you should improve your monthly cash flow. As you pay off your debts, less of your income will go toward principal and interest payments, and you’ll have more financial freedom.
