How To Pay Off Debt By Borrowing From Yourself

How To Pay Off Debt By Borrowing From Yourself

Paying off debt can feel overwhelming. The interest charges keep piling up, and it can seem like you’re just treading water every month without making any real progress. But what if you could borrow money from your future self to get ahead of the game and pay down your debt faster? It may sound counterintuitive, but there are a few smart strategies that allow you to essentially borrow from your future earnings to accelerate debt repayment now.

Redirect Future Income to Pay Off Debt Faster

One of the simplest ways to “borrow” from your future self is to temporarily redirect some of your future income towards debt repayment now. For example, if you expect to get a tax refund in a few months, you could adjust your W-4 allowances to decrease your refund and increase your take-home pay. Then, take that extra money each month and make an extra debt payment. It’s like you’re borrowing your tax refund early to pay down debt faster.

You can do something similar if you have any other lump sums coming your way soon – a work bonus, freelance income, cash gifts for a birthday or holiday, etc. Adjust your withholding or savings deposits so more money comes home in your regular paycheck. Use the extra to make accelerated debt payments now, before that bonus or gift money even hits your account.

Leverage a 0% Credit Card Balance Transfer

Another way to “borrow” from your future self is to transfer existing credit card balances to a card with a 0% introductory APR. This gives you a 12-18 month reprieve from interest charges so every dollar goes straight to paying down principal. It’s like you’re borrowing from your future (post-intro APR) self who will no longer have to pay interest. This strategy allows you to pay off debt much faster during the intro period.

Just be sure to have a plan to pay off the full balance before the 0% rate expires. The last thing you want is for the interest to kick back in just as you’re nearing the finish line. Make payments large enough so you’re on track to be debt-free by month 18 (or whatever your card’s intro period is).

Borrow Against Your Home Equity

If you’re a homeowner, borrowing against your home equity can give you access to large sums of low-interest financing to pay off pricier debts like credit cards. This allows you to consolidate debts into one manageable payment at a much lower interest rate. You’re essentially borrowing from your future self who gets to keep more money each month rather than losing it to high interest.

Just be careful only to borrow what you can comfortably afford to repay on a 15-year term. Never put your home at risk just to pay off unsecured debts a bit faster. But used wisely, a home equity loan or line of credit can save you thousands in interest and help you pay off debt years faster.

Refinance Student Loans

Student loan refinancing also allows you to “borrow” from your future self. By refinancing federal or private student loans to a lower interest rate, you keep more of your payment going to pay down principal each month rather than interest. You can often shave 0.5-2% off your rate by refinancing, which can accelerate your payoff timeline by years.

Just know that when you refinance federal loans, you lose access to income-driven repayment and forgiveness programs. Do the math to determine if you’ll still come out ahead and if refinancing aligns with your overall financial goals.

Take Out a Personal Loan

Personal loans allow you to consolidate and pay off credit card balances at a lower interest rate, helping you get out of debt faster. You can “borrow” from your future self who gets to keep more money each month rather than losing it to high credit card interest rates.

The key is to pay off the cards in full so you’re not tempted to continue charging. Commit to closing accounts if needed. Personal loan rates will likely be under 10%, versus credit card rates of 15% or more. Just be sure you have a plan to pay off the personal loan in 3-5 years.

Adjust Your Tax Withholding

As mentioned earlier, adjusting your tax withholding is a simple way to put more money to work for you now. If you usually get a large refund, have less withheld from each paycheck. The extra money can then be applied to debt each month. You’re essentially borrowing from your future tax refund.

Just be careful not to under-withhold too much. You don’t want to end up owing taxes and penalties next April. Aim to withhold just enough so you break even or get a small refund. The rest can be redirected to debt repayment throughout the year.

Save Less for Retirement Temporarily

If you participate in a 401(k) or other workplace retirement plan, you may be able to reduce your contributions temporarily and redirect that money towards debt repayment. Say you put 10% of your income into your 401(k) – you could reduce that to 6% for a couple years and use the extra 4% to pay off debt faster.

This is essentially borrowing from your future retired self. Just be sure to ramp the 401(k) savings back up once the debt is paid off. And avoid taking loans or early withdrawals which incur fees and taxes.

Pause College Savings

Similarly, if you’re saving for your child’s college education, consider diverting a portion of that money to debt repayment for a short time. Maybe aim to save 10% less and apply the difference to your highest-interest debt. Once that debt is paid off, resume college saving at your previous level.

Your child can always borrow for college down the road via student loans if needed. But it’s critical to pay off your own high-interest debts before retirement. A short pause in college saving can help you make faster progress.

Save Less for a Major Purchase

If you’ve been saving up to buy a house, make a major home improvement, or purchase another large item, temporarily reducing those savings can free up cash to knock out debt. Say you’ve been saving $500 a month for a down payment – you could reduce that to $200 and put the extra $300 towards debt.

You’re essentially borrowing from your future homeowner self. Once the debt is paid off, resume your full saving rate. Slowing down your savings for a short period can help you pay off debt faster.

Pick Up a Side Gig

Starting a side gig is another way to “borrow” extra money from your future self. Use earnings from freelance work, driving for a rideshare service, or other side jobs to make extra debt payments each month. Future you will be thankful when those debts are paid off faster.

Even earning an extra $200-500 a month from a side gig can make a big dent. And since side income is separate from your regular paycheck, it’s an easy way to earmark extra cash for debt repayment. Now is a great time to start monetizing a hobby or skill.

Sell Unneeded Items

Take a look around your house for any unused items you can sell, like old electronics, furniture, designer bags or clothes, sports gear, etc. Use sites like eBay, Poshmark, Facebook Marketplace and Craigslist to get cash for items taking up space. Future minimalist you will thank you.

Use all proceeds from selling unused stuff to make extra debt payments. Not only will you pay down debt faster, but you’ll declutter your life in the process. Double win.

Find Room in Your Budget

Analyze your monthly spending to find any areas where you can cut back, even temporarily, to direct more cash flow towards debt repayment. Can you downgrade your cable package, eat out less, pause the gym membership, or reduce any other discretionary spending?

Even small cuts of $20-50 a month add up. Use a budget app to identify potential savings you can redirect towards debts. Future debt-free you will appreciate all those minor sacrifices.

Negotiate Lower Interest Rates

Call each of your creditors and request a lower interest rate. You’d be surprised how often this works, allowing you to save money each month. You can also ask creditors to waive late fees or over-limit fees to further reduce your monthly costs.

Lower interest and fewer fees help more of your payment go to principal each month. Never hurts to ask! Future you will get out of debt faster with less money wasted on interest and fees.

Let Your Employer Help

Some employers offer programs to help employees pay down student loan or other debt. Options range from matching payments, to payroll deductions towards loan servicers, to low-interest refinancing. See if your company offers any perks that could help you pay off debt faster.

Taking advantage of employer programs is an easy way to “borrow” from your future self who gets to keep more of each paycheck after debts are repaid. Don’t leave any free benefits on the table.

Automate Everything

On your journey to pay down debt, automate everything you can. Set up minimum credit card and loan payments to autopay from your checking account. Have a portion of your paycheck direct deposited into a separate savings account earmarked for extra debt payments.

Automation helps build momentum and makes it easier to pay yourself first each month. Future you will reach the debt-free finish line faster when payments happen on autopilot.

Keep Visual Reminders

Keep visual reminders of your debt repayment goals everywhere. Post sticky notes on your bathroom mirror, desk, and fridge showing total owed, monthly payments, and your end date. Make your screensaver an image of a debt thermometer showing your progress.

Visuals help reinforce your commitment and remind you to stay focused. Watching balances decrease month after month keeps you motivated. Your debt-free future self will thank you.

Celebrate Small Milestones

Paying off debt is a marathon, not a sprint. Celebrate even small milestones along the way like paying off your smallest debt, making it through a 0% intro APR period, or hitting certain dollar amounts paid off.

Give yourself non-financial rewards like a movie night, hike, or spa trip. Celebrating keeps you motivated to stay on track. Your future debt-free self will be popping champagne in no time.