In the simplest terms, debt or indebtedness is defined as an amount of money owed to businesses (lenders), organizations or individuals for money that was borrowed. Debt can be classified into several categories, such as credit cards, loans, mortgages, bonds, and taxes, among others.

In addition, it can be any type of agreement in which interest rates, penalties and payment terms are clearly established. Regardless, all types of debt imply the intention to repay the money owed. This is usually stated in the payment terms of the particular debt.

Tips to get out of debt painlessly

Although we use the term loosely, there are easy ways to pay off debt. The more disciplined you are with your personal finances, the easier the payment process will be. Here are some key tips for paying down debt:

Pay more than the minimum payment required – This is very actionable advice, especially when you’re trying to pay off credit card or mortgage debt. Whenever possible, get out of the habit of making only minimum payments. It gets you nowhere.

Using the “snowball” method to pay off debt – Align all your monthly debts and payment amounts. Whichever of these obligations has the smallest balance, you pay first. Then pay off the next largest balance, and so on.

Withdrawal from savings accounts – this is a bit touchy with some people. However, if the interest on your debt averages 12%, your savings account should be paying you 18%, taking into account taxes, to offset the outflow of dollars.

Loan against life insurance policies – Again, that’s not a highly recommended option, but it’s still an option. If you have an insurance policy that has built up some cash value, you can borrow against this. Granted, you’re borrowing your own funds, but the interest rate will be considerably lower than elsewhere.

Ask family or friends for financial help – Once again, you could be treading on dangerous ground here, as many families have fallen apart and friendships have been destroyed because a person borrowed from them and couldn’t pay it back. Only go this route if you are sure you can pay the money back in a specific period of time and at a specific monthly rate.

Apply for a home equity loan – We’re not talking about a home equity line of credit (HELOC) here, as it’s not advisable. If the house has built up considerable equity, you can borrow against this to pay off the debt. Keep in mind that there are dangers, most of which is maxing out those credit cards again once you’ve paid off your debt.

Borrow against your 401k or retirement plan – This can be a risky move due to the tax obligations that occur every time you withdraw retirement funds. In most cases, you can borrow up to 50% of the current value of the retirement plan. Just keep in mind that the loan and interest are paid in after-tax dollars.