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GET OUT OF DEBT and TRAVEL more!

updated August 25, 2020

One of the biggest hurdles to traveling more is debt. Being saddled with high-interest credit card payments or a mortgage can make saving a real challenge. And we admit, getting out of debt can take time. But with the right strategies, anyone can speed up this painful process and get on their way to saving more. With this in mind, we’re sharing some of the best strategies out there today for reducing debt and taking control of your expenses. Be sure to also check out our recent article Mortgage-Free for Financial Independence and learn powerful strategies for avoiding this lifelong commitment also known as a “death pledge.”

1. REFINANCE EXISTING DEBT

When people hear the term “refinance” they typically think of mortgages. The fact is, you can refinance any type of loan including auto loans, personal loans, credit card debt, and even student loans. The key to lowering your interest rates is having a good credit score, so you may need to spend some time improving that first. Even without perfect credit, many people can still reduce the amount of interest they’re paying by shopping around for better rates offered by credit unions and other lenders.

How does your credit score impact you? Read our article on Credit Score Basics to learn more.

 2. SETUP UP AUTOMATIC PAYMENTS

Setting up your loans with automatic payments has multiple benefits. Many loans will receive a rate discount if you elect for automatic payments, so why not take advantage of less interest? Plus, having your payments made automatically takes some of the stress off of you and ensures you never waste money on late payments.

3. SWITCH TO BI-WEEKLY PAYMENTS WHENEVER POSSIBLE

The simple act of splitting your monthly payment into two separate bi-weekly payments can save you loads of money and even help you pay off your loan sooner. How is this possible? The simple answer is that your unpaid balance has less time to accumulate interest because you have more going to principal sooner. Plus, bi-weekly (not bi-monthly) means you’ll essentially be making an extra payment every year. Take a look at the 2 examples below to see just how much you can save.

4. CONSOLIDATE YOUR DEBT

Similar to refinancing, the goal of debt consolidation is to reduce the amount of interest you’re paying and become debt free as soon as possible. As the name suggests, you’re rolling your debts into one single loan. This could mean transferring balances to a new credit card that offers 0% interest for a certain period of time, but don’t get trapped into shuffling around your debt without actually paying it down! A better option than consolidating your debt into yet another credit card, would be to use an existing asset like your home, auto, or even in some cases a 401-K. Home Equity Lines of Credit (HELOC) are a great way to consolidate your debt if you are a homeowner. Using a car that is paid-off to qualify for a title loan might be a good option too. If you’re considering taking out a 401-K loan to pay down debt, be sure to understand your plan’s policies and repayment terms. Many financial advisors will caution you against this because of the opportunity costs you’ll be missing out on, but in certain circumstances it may be your best option.

5. CREATE A BUDGET

Admittedly, this one is pretty basic advice, but according to debt.com, only 67% of Americans maintained a household budget last year. Creating a budget allows you to have a clear understanding of your income and expenses, reveals waste, relieves financial stress, and gives you a sense of control over your money. Once you begin using a budget, you can identify exactly how much extra money you can start applying towards your debt.

6. PRIORITIZE HIGHER INTEREST DEBT

Not all debt is created equal. Should you try to pay off your mortgage loan a little sooner or pay off your credit card balances first? Focusing on your debt that has the highest interest rate is known as the “Debt Avalanche” method and will save you the most in the long run. Typically, this would be credit cards and personal loans first followed by car loans, student loans, and mortgages.

7. THE SNOWBALL METHOD

While the Debt Avalanche method will save you the most money in the long-run, many people prefer the "Snowball" method made popular by Dave Ramsey. This debt reduction strategy has you list all of your debts from smallest to largest. You make sure that all of the minimum payments are being made, but anything extra is then applied to your smallest balance. Once the smallest loan has been completely paid off, you then roll those extra funds into the 2nd smallest loan. Wash. Rinse. Repeat. The Snowball Method has become popular because it allows you to have a sense of accomplishment early on and keeps the momentum going.   

8. ADD ADDITIONAL INCOME

Not paying down your debt as fast as you would like? If you can’t lower your expenses any further, then it’s time to find ways of adding extra income that you can use to pay down your debt faster. There are numerous options thanks to the new Gig Economy that include driving for a ride share program, becoming a dog-walker, or putting your handyman skills to work. Commit extra income to paying off your debt as quickly as possible and once you’re debt free, consider using the extra income to fund your next dream getaway.

9. CANCEL YOUR CREDIT CARDS

This one really depends on the individual and be aware that cancelling credit cards can negatively impact your credit score! Having said that, some people just know that they’ll be tempted to start using them again once the balances are transferred or paid down. If you have enough self-discipline, then leave your cards open to protect your credit, but cut up your cards so you won’t be tempted to use them or at least throw them into the back of your sock draw and save them for emergencies.

10. CREDIT COUNSELING

Feeling like you’re in over your head? Don’t stress because you’re not alone. According to the National Endowment for Financial Education (NEFE), more than half of all Americans say they are living paycheck-to-paycheck even during a strong economy. If you find yourself in this situation, then you should absolutely consider speaking with a credit counseling agency. There are many excellent non-profit options that offer free services to help get your situation under control. Be aware of debt management companies as they are not the same as credit counseling agencies. There are numerous scams out there looking to take advantage of people who feel desperate, and many debt management companies do just as much damage to your credit score as filing for bankruptcy. Do your homework and play it safe.

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