Did you make a New Year’s resolution to pay your debt off, or at least pay it down?
Did you know that most of the strategies you’re taught is slower and riskier than it should be?
How can you pay off your debt without being too risky (which is how everyone teaches to do it)?
I’m going to teach you a few tricks that I’ve taught hundreds of my clients to do to pay off their debt faster and safer than Dave Ramsey. However, I’ll warn you, it might seem against the mainstream advice. If you’re not open to doing things differently to getting different results, it won’t work for you.
Are you sure you want to know?
Okay, enough playing around.
As a disclaimer, it’s very likely that you could do it even faster than I’m teaching you here. My clients were able to do it faster because I was able to see their individual situation. However, these are some common tricks that can work for most. They are:
1. Build your emergency reserves to at least one month’s of your expenses
2. Stop contributing to retirement accounts
3. Refinance your loans
4. Ignore the interest rate
Build Your Emergency Reserves
The biggest mistake I see is that people feel guilty about having debt (another conversation for another time) and only focus on paying it off. Along with a good offense, you need to have a good defense. Why pay off that 5% car loan quicker only to have to use your 18% credit card for an unexpected emergency because you used all your cash to pay off your car? Doesn’t that sound ridiculous? Build your defense and peace of mind first, then attack!
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Stop Contributing to Retirement Accounts
Same thing here! Why hope and pray for a 5% return in the stock market when you could be paying off a loan at a higher interest. Paying off a debt has a guaranteed rate of return. No financial planner can compete with that!
Refinance Your Loans
This is the one where I get the most push-back, but often gives them the biggest results and peace of mind. We have been so emotionally brainwashed by the banks to pay them back faster, that we feel guilty when we refinance to a longer term and/or lower interest rates. Now is a great time to refinance because of the low rates! Remember, it’s about freeing up cash flow so you can pay off the debts faster. Sometimes, refinancing your home may free up $1000/month to make you more financially stable to pay off your other debts faster!
Ignore the Interest Rate
I asked you if you were ready for this. Are you still with me? Buckle up!
Like the refinancing point, we have been trained by banks to pay them back faster so they can use our money to make more money faster. They use interest rates as a tool to get you to do what they want. Financial freedom and peace comes from having cash flow, not just having less debt. Don’t lose sight of this!
For example, paying down your mortgage or your car loan in half doesn’t help you when the payment stays the same and you get laid off or your income reduces for some reason. Until it’s totally paid off, you don’t notice a difference. Focus on paying off one loan at a time that has the lowest balance with the highest payment.
That doesn’t always mean paying off the lowest balance first either. For instance, if I had two $1000 loans – one car loan (5%) at $200/month and one credit card (18%) at $30/month – I’m paying off the car ASAP. It’s safer because you just saved $200/month instead of $30, and you’ll pay off the credit card just as fast anyway. Interest doesn’t make much difference short term. It’s all about the cash flow! Can you see how this could be safer AND faster than the typical, worn out advice?
Start here and apply this in your own situation. After helping hundreds of entrepreneurs, and others, use these methods (and more), I’ve seen them hit financial benchmarks they’ve never seen before. They’re happier during the process because life doesn’t slow them down, and they’re excited afterward. Try it, you might like it! 😉
What other methods have worked for you?