What it takes to pay off $50,000 in debt in one year in 5 steps
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At a Glance
Household debt grew by $305.1 billion in the third quarter of 2021. As an individual, you may be ready to take on drastic measures to pay off your debt very quickly. Now, imagine paying $50,000 of debt in one year. If it sounds crazy, don’t discount the idea just yet. With strategy and discipline, it may just be possible for you.
“The average person may be able to pay off a huge amount of debt that is owed within a year if they are committed to maintaining their budget and careful with their spending,” says Chris Panteli, finance and investment expert and founder of LifeUpswing.com.
For example, if you spend $2,000 on groceries every month and decide to halve that amount through meal-planning and shopping in bulk and on sale, you’d have put aside $12,000 to put towards debt by the end of the year. It’s a good start. But you’d need other efforts too.
“An individual with $50,000 in debt would need to pay an average of $8,333.33 per month to pay that debt off in one year. They would need to be able to allocate that much money for paying off their debt each month, and also have enough available funds each month to pay the minimum amount required under their repayment plan,” says Panteli.
Ready to take on the challenge? Below is everything you need to know about paying down a substantial amount of debt in a year.
The benefits of paying off all your debt in a year
First, arm yourself with motivation. There are massive benefits to pulling off such an ambitious debt repayment plan. “Some of the benefits include improved credit score, improved interest rates on new loans or lines of credit, and improved self-esteem,” saysPanteli.
“A major motivation for people with substantial amounts of credit card debt is the high interest rates they are paying on their loans,” he adds.
“These loans often carry an annual interest rate higher than 20%. For example, if you owe $10,000 on your credit card and the balance carries an annual interest rate of 29%, you will be charged $2,900 in interest each year.”
Tips to pay off $50,000 of debt in a year
Now that you have a strong why, which will inevitably help when your friends invite you to join an expensive outing and you decline, here are a few tips to tackle a $50,000 debt in the span of a year.
Create a budget and track all expenses
Create a detailed budget for all your fixed expenses, says Jonathan Svensson, the co-founder of Almvest, a financial education resource. These include things like your rent or mortgage, utilities like the electricity or the internet, car payments, etc. He recommends using a free app like Mint to understand your spending with convenient online tracking tools.
“By understanding your fixed income versus your fixed expenses, you can cut out unnecessary spending on things like going out to eat, going to the movies, ordering Starbucks every morning, and so on,” he says.
Be mindful of debt fatigue
Being so strict puts you at risk of a phenomenon called “debt fatigue,” so it’s important to be aware that it exists. Basically, you don’t want to put yourself in a situation where you become financially unstable and give up on paying your remaining debt, says Panteli. Save some money for some of your day-to-day expenses and approach your debt repayment strategy like a marathon, not a race.
Prioritize paying high-interest debt first
“Prioritize your debts and pay off the highest interest rate debt first. Instead of making minimum payments on all your debts, try putting as much money as you can towards paying down your highest interest rate loan/debt until it’s gone,” recommends Svensson. Then, move on to the next highest-interest balance, and so on.
“This way you’ll be saving yourself from wasting money due to high-interest rates by eliminating that from the equation early on in the repayment plan.”
Get a higher-paying new job
The job market is hot, so it’s the perfect time to take advantage of it. A pay jump can help you drastically turn around your financial situation when combined with a reduction of unnecessary expenses.
Freelance on the side
Finally, start a side hustle in addition to your full-time job, says Svensson, who suggests using sites like Upwork and Fiverr to find freelance opportunities.
“This could be anything from digital marketing to customer service to admin support to writing. If you have a specialized skill, there’s likely someone on these sites willing to pay for it. If you find yourself with a lot of extra time, turn that time into money instead of watching Netflix,” he adds.
No one is saying paying off a large amount of debt like $50,000 in what is considered a short amount of time is going to be easy, but it is possible. You have to be disciplined and accept that there are just certain things you aren’t going to be able to do during this time period. But in the long run, being debt-free will be the ultimate reward.