How to Get Out of Debt Faster, Part 1
Money Girl’s 5 easy tactics to pay less interest, save more money, and create a more secure financial future.
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If you’re like most people, you want to ditch your debt as quickly as possible without having to take a second or third job. Having too much debt can be a real burden that holds you back from improving your financial life.
How to Get Out of Debt Faster
When it comes to getting out of debt, there are 3 basic strategies:
- Don’t increase it
- Reduce the interest rate
- Reduce the principal balance
In this post, I’ll cover specific tactics to reduce the interest rate on your debt. And next time, you’ll learn how to reduce your principal balances.
How to Reduce the Interest Rate on Debt
The interest rate is the cost of borrowing money. It’s the amount you’re charged in addition to the principal amount you borrow and it depends on several factors including:
- the current market interest rates
- your credit score
- the length of the loan
- the amount you borrow
- the type of credit account
How a Lower Interest Rate Saves Money
Say you get a car loan for $20,000 with a 15% interest rate over a 5-year term. Your monthly payment would be about $475. If you got that same loan at 6% interest, your payment would be about $385, saving you $90 a month, or more than $5,000 over the life of the loan.
Think about what you could do with that money! If you invested $90 a month for 5 years and never added another penny to the account, you’d have over $30,000 in 20 years, assuming an 8% average annual rate of return.