10 Effective Ways to Pay Off Your Debts

(This article was originally published on the 7th May 2017 and updated on the 17th September 2020). 

Do you have a pile of debt and it seems like you are never going to get it cleared up anytime soon…or ever? You are not the only one. We have rounded up a few easy to follow strategies to help you pay off your debt effectively and possibly be debt free!

1. Create a budget

Source: Freepik (@Pressfoto)

The first step to clearing off your debt is to create a budget. You can start with an Excel spreadsheet or Finance Manager apps to help track how much you will spend and save each month. Be honest to yourself about your income and expenses. This way, you can itemise all your expenditures and be able to see where you can spend more or less on. But most importantly, stick to your budget!

2. Pay off the most expensive debt first

Source: Freepik

Sort your debts according to their interest rate from the highest to the lowest interest or from the most important to the least. This is because if you can pay off your debt with the highest interest rate, you would be able to save up on interest in the long run. Prioritise paying off the necessities first such as home loans or rental, car instalment, utilities, personal loans, groceries, etc. Then you can focus on paying the other miscellaneous or pocket expenses like gym membership, pet food, streaming services, etc.

3. Pay more than the minimum required

Source: PennState World Campus

Let’s assume that you have a credit card debt. You should pay more than the minimum payment in your statement balance each month. Paying the minimum balance only would offset your debt and prolong you clearing the sum of your debt which increases with your monthly interest rate. If your debt is huge, try to slowly increase your payments each month until you feel comfortable paying more than the minimum required.

4. Consolidate your debts with a personal loan

Source: Freepik

One way to bring down the amount of your debt is by reducing the interest rate. You can achieve that by obtaining a personal loan with a much lower interest rate through debt consolidation. In simpler terms, debt consolidation means combining multiple debts into one monthly payment. Many consolidate their debts with a low interest rate personal loan because it helps to reduce your monthly instalments and focuses on paying one single monthly payment.

For instance, if you are a government servant, Co-opbank Pertama (CBP) currently offers a promotional rate of 2.85% for a 10 years loan tenure. If you have other loans or credit card that has a higher interest rate than that, you can apply with CBP to save more on interest.

5. Make use of credit card benefits

Source: Today Online

If you have one (or more) of this ‘plastic money’, they can essentially do more than just buy things on a credit. Some credit cards allow you to move funds at 0% interest rate and that is called as balance transfer. Do take advantage on this as a balance transfer could help you to save up some money. For example, assuming that you have a credit card debt of RM15,000 and interest rate is 18% p.a. In a year you can save up to RM2,700 by just doing balance transfer.

So, if you have a sum of debt that you are confident that you can pay off within a few months, check with your bank to perform a ‘balance transfer’ for a small (if not free) fee to speed up your debt clearance.

6.  Avoid unnecessary spending

Source: iStock

The best way to stop accumulating your debt is to stop spending! Of course, we do not mean by stopping your spending entirely. To make it an easy start, try reducing your spending by cutting down your smaller expenses first little by little. For instance, instead of using a paid music streaming app try switching to a free version instead.

Also, practice the habit of thinking before you spend. Ask yourself is it worth buying or will you still need it or use it 6 months from now? Practice this like a mantra until you have your finances in control.

7. Put work bonuses towards debt

Source: Malay Mail

It feels great to reward yourself after receiving a bonus. But before you start pampering yourself with a luxurious purchase, think about it again. Do you really need it? Sometimes, rewarding yourself does not need to be expensive. Perhaps it could be a budget road trip or treating your family to a simple meal.

Ideally, any money received should be allocated to pay off your debt first. Make that sacrifice because it is more important to get your finances right first!

8. Work side jobs to make extra money

Source: Freepik

Getting a second job is one of the fastest way to pay down your debts. Utilise your time-off wisely. Instead of laying on the couch watching your favourite series, use this time to pick up some freelancing jobs that you are good at. Whether it is creative writing or graphic design, a lot of these freelancing jobs can be done from the comfort of your own home. So, start building your portfolio and look out for jobs on Upwork, Fiverr, Freelancer, etc.

Moreover, you can also turn your hobby into a second income. If you enjoy baking, why not try selling your desserts online? The opportunities are endless. Check our article for more creative ideas on how to get a side hustle.

9. Sell unwanted gifts and household items

Source: Time Out

Look around your house to see if there are anything that you don’t use anymore. If you have any old gifts, decorative or furniture that you do not need and is still in good hands, give it a good dusting and sell it off online to earn some quick cash. Put it up on marketplaces like CarousellMudah.my or Lelong at a reasonable price so it can sell quickly! Profits from the sale of these items should go into your debt clearing funds.

10. Reward yourself when you achieve your milestone!

Source: Dominik Jirovsky

Paying off your debt will be a long and painful journey if you look at it as a punishment for your lifestyle. Set a milestone or a payoff goal and give yourself a small reward when it is met. This helps to keep us motivated. Of course, do not go on a splurging frenzy. For example, instead of taking an outstation trip, settle for a weekend camping trip nearby.

There are no shortcuts

Your debts won’t get paid by itself. Just like what Dave Ramsey said, “There are no shortcuts when it comes to getting out of debt”. It will be challenging at first but if you don’t start making a change, nothing will change. As hard as it gets, don’t resort to easy solutions like getting a loan from loan sharks or ‘ah long’. You will regret making that decision. However, if you have tried the 10 ways we have stated above and still drowning with debts, try reaching out to AKPK. They offer free consultations and can assist you through their debt management programme (DMP).

This article is written by Direct Lending, an online personal lending platform that provides – Simple, Safe and Affordable Financing. Reach out to us if you are in need of a personal loan or talk to our friendly loan consultants if you have any questions about personal finance. Our service as always is 100% free. For more useful personal finance tips, follow us on the blog or our Facebook page.

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