When can I pay off my debt?
Debt can be a major obstacle towards achieving your financial goals, not to mention it's stressful. Setting up a budget is the first step to being able to pay off your debt. When you can pay off your debt will depend on a how much you owe, the interest rate on that debt, and your monthly payments.
How can I pay off my debt sooner?
The simple answer here is to pay as much as you can towards your debt. There are some other options like debt consolidation, debt settlement, or taking out money from a retirement account. Some of these may sound tempting, but they usually come with drawbacks, such as higher interest rates, hidden fees, or jeopardizing your retirement savings.
Focus on your goal of paying off debt and stay the course. Making monthly payments now, even if it's not much, will help you pay the debt off sooner because it prevents more and more interest from accumulating on the debt. Also, any time you come across extra money - a tax refund, a bonus at work, a birthday gift from grandma - you can pay down more of the principal on your debt.
Is it okay to just make the minimum payments?
This varies depending on the type of debt, the principal, and the interest rate.
For example, your credit card may only have a minimum payment of $25 per month. However, credit cards also charge really high interest rates - sometimes up to 20% or more! If you have a balance on your credit card of $1,500, and the interest rate is 19%, this is $285 per year of interest. In other words, making the minimum $25 per month payment is only paying off $15 per year of the principal! It would take over 15 years to pay off this balance.
Avoid pitfalls like the one above, and pay as much towards your debt as you can - starting with the highest interest rate debt. It's helpful to put together a monthly budget to determine how much you can contribute to paying off debt. Then you can use this calculator to see when you'll be debt free!