How to Pay Down Debt Faster

If you’re someone who pays attention to the national news, you know just how robust the job market is, and how unemployment is at an all-time low.

But does that mean the masses are enjoying more income, less debt and a more prosperous retirement outlook? Well, not exactly.

That National Unemployment Rate is at 3.7, as of the September 2018 report, with 134,000 jobs created.^[1]

That is reason for optimism from a jobs perspective, undoubtedly, with that 3.7 being a 10-year low for the United States.

And the job front being on the upswing also coincides with the national average, median wage being at $44,564 as of final numbers last year, which is higher by almost 1 percent versus the 2016 numbers; with bachelor’s degree professionals at $66,456 and advanced degrees at $77,324, in front of the $37,128 figure for high school diploma alone.^[2]

So while some argue that more jobs isn’t always equating to more pay, that could be argued based on those statistics, along with promising starting salaries for the Class of 2018. They’re somewhere just about the $50,390, not too bad but essentially about the same as it was last year versus inflation.^[3]

Even when you get granular on the salary piece, you could say, relatively speaking, that earning more is something that is happening in 2018 and most likely beyond, should the job front remain stable.

But the counter punch to the positivity that reigns over the salary piece, and the job market as well, is the amount of money the average person has saved and the chunks of decisive debt they’re still assuming and carrying around, whether that’s the dreaded credit card variety, student loans or mortgages, even though the last two on that list could be argued as necessary evils.

Student loan debt, for example, is something that can’t be overlooked even though that aforementioned Class of 2018 is earning more than $50,000 per year. The average student loan debt in 2016 was just under $40,000 at $37,172, and altogether student loan debt is about 1.5 million in the United States; even more troubling is the 2018 numbers are worse, with delinquency on debt at 10.7 percent, meaning it’s been more than 90 days.^[4]

The amount of consumer debt in the United States is 3.9 trillion, with the average credit card balance per household at around $9,333 (balance carrying) and $5,700, with numbers fluctuating based on income: $3,946 for income under $5,000 and $10,307 for individuals with no income and even $8,139 if you’re making over $500,000.^[5]

The long and the short of this is debt still is a concern and problem for the masses, no matter the variety.

Again, you can argue that student loan debt is something you need to have in order to defer to a better education and better job, along with those who say a mortgage or car payment also is part of that assumption of debt you can’t avoid.

Credit card debt is a completely different discussion in theory, but truthfully all debt is worrisome and a source of frustration for everyone.

A poll of just over 1,00 adults showed that 56 percent of those with debt fell as though it impacts their lives directly and in a negative way, with 28 percent saying it’s a daily financial concern, 21 percent saying it’s a tense subject with their significant tother and almost 20 percent say calls from collection agencies happens.^[6]

The real key coming out of that study is 31 percent saying that debt is a concern generally speaking, which means it is always on your mind.

The most recent report from the Federal Reserve in August of this year shows 13.2 trillion in debt per household, an increase versus 12.7 trillion; the same study showed savings is declined to about 2.4 percent and 35 percent of adults say they can’t pay their bills if they’d have a financial emergency hit out of nowhere, and by emergency that means $400 in unexpected cost.^[7]

All of this shakes out to one ultimate conclusion: more jobs, decent pay but debt still resounds as an issue, a point of contention that you can’t ignore, but rather need to start thinking long and hard about tackling head on. While that advice sounds easy in theory, it can be asserted and backed up with a few money moves that examines not only your income, but, alternatives to spending or finding a better plan to take on what debt you have, rather than just assume this debt is a life-long sentence you’ll never find solace from, no matter how hard you “try.”

The trying is key, and you can pay off debt faster and easier if you follow a few simple rules of thumb:

Stop using credit cards, then attack them individually and collectively

It may sound like an odd piece of advice, and by that “obvious” but most who have desire to pay off their debt often still take on new debt or use the same credit cards or lines of credit that are hampering them.

The amount of revolving debt from a credit card perspective is on the rise, roughly 38 percent of households have it as of 2018, a high since 41 percent in 2010.^[8]

This sort of debt suggests that you’re not a “transactor,” meaning you use the card and pay it off right away, but instead always have some line of debt you’re paying on, from one month to the next.

Instead of adding debt, you should ignore your credit cards altogether and begin implementing a plan to pay them down.

Two schools of thoughts abound when it comes to how to tackle debt when considering interest rates and amounts you owe, per card.

For example, some argue that paying off the bigger more costly debts first makes sense, thus tackling higher interest rates with more money devoted toward the bottom line.

The more rewarding and equally as viable option is the Debt Reversal Pyramid, which allows you to plan on hitting smaller debt first, paying it off (while maintaining minimum payments on all other debt) and then taking what was being paid on that smaller debt and reallocating it to a larger line of credit you owe. [https://www.rethinkingdebt.org/debt-reversal-pyramid">[9]

Again, this process or any repayment plan for credit card debt only works if you cease using the credit cards and are on time with your payments, too.

Re-examine your budget and get tough on expenses

So if you like the idea of having a Debt Reversal Pyramid or really sitting down and going over those higher interest rate loans, but always end up coming back to the same reasoning why it’s impossible: you don’t have the extra money to do so.

First, that doesn’t hold much water because as long as you’re paying your minimum payments, you are still doing the “bare minimum.” Second, with the Debt Reversal Pyramid, the goal is to take the smallest debt and pay more than just the minimum, so that’s apparently where this reasoning rears its proverbial ugly head.

Having a budget is paramount, but sticking to it is even more important.

The sad fact is less than half to the American population uses a budget, which begs the question: how do you track what you make versus what you spend?

Great question, in fact, and the answer is a simple: you can’t, at least not accurately.

Did you know that some of your expenses are weighing you down and are fair game to be cut?

Take for instance cable television at $80 per month on average.^[10]

Eliminating that alone and replacing it with a streaming service is going to net you $780 extra each year.

That’s how you get tough on your budget.

Yes, you love cable television but you need to love getting out of debt more than flipping through 300 channels mindlessly, but yet making minimum payments on debt that is destroying your financial future.

Consider weighing the options like this: Take the $780 versus $3,000 in credit card debt. If you take that $780 over the course of 4 years, you can have most of that $3,000 paid off, versus probably about 15 years at an interest rate of about 15 to 20 percent.

When you rephrase and repackage in like terms, you’ll see just how cutting once little expense makes a world of difference.

Consider carrying debt you don’t need, or at least can alter

College, student loans specifically, are on the rise with a 3 percent hike in tuition on private colleges, 2 percent at in-state schools and 1 percent on the out of state fare, with the average for private being around $35,676 per year, and $21,629 for the public, out of state school and only about $9,716 for in-state public schools.^[11]

Furthermore, about 100 private colleges are around the $50,000 per year price tag, and while students are finding ways to be financially creative, by staying with nearby family or just staying at home period to go to school, you have to start thinking smart about paying for college.

The under $10,000 per year still means you’ll graduate $40,000 in debt, but consider the alternative of $140,000 for a private school. You have to weight this relative to your major, your plans and job hunt and what you expect to be making out of school, but debt is going to be suffocating if you’re not thinking through where you see yourself, post-graduation and if you can be assured the money will be there.

Another variable to consider is the average cost of a trade school versus that of a bachelor’s degree, a typical four-year program.

A bachelor’s degree does in fact earn $17,000 more than just a high school diploma but at $127,000 for the bachelor’s and 70 percent of students who take out a loan for school versus $33,000 for the average trade school means you’ll pocket nearly six figures in educational costs versus comparable incomes.^[12]

It’s at least an alternative the undecided might want to consider before spending money if they’re not fully committed to a major or going to a traditional four-year school whatsoever.

Even the word “debt” sounds awful, eliciting a response from most that is underscored with fear, doubt and desire to make it a thing of the past.

What is truly alarming about financial planning and debt, specifically, is just how little the average person understands or that having a plan or outlook on where they want to go is extremely clouded at best.

Roughly 30 percent say budgeting helped them plan, 13 percent had a five-year plan and 31 percent of the 1,000 people polled said they can never see a time or day that they wouldn’t have some sort of debt, and that doesn’t even begin to factor in the fear of retirement.^[13]

The truth of the matter is we’re in the midst of more jobs, pay that has seen a slight uptick but still that propensity to spend, and devoid of any sort of rhyme or reason to laying the groundwork for better decision making, thus prompting debt to remain the same or get worse.

Enjoying the fruits of your labor and basking in a better economy isn’t a replacement for eliminating and avoiding debt, at all costs.

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