Debt is a tremendous burden that will weigh you down and make it difficult to feel at peace financially – whether it’s $1,000, $10,000, or $100,000!
In this post, you’ll find out how much debt you owe, choose a debt payoff strategy that works for you, and learn a few ways to get out of debt faster.
You want to get out of debt so you can start saving toward buying a house, getting married, or starting a family. Or perhaps you’re just looking for some financial peace of mind.
No matter your motive–or how much debt you owe–these strategies can help you effectively get out of debt and make progress with your personal finances.
Find out how much debt you owe
If you’ve already calculated your net worth, then you should have a good idea of how much you owe.
However, if you haven’t, listing and adding up all of your debts is the first step toward organizing your finances and becoming debt-free.
Without knowing this number, it will be very difficult to create an effective plan. To calculate it properly, you need to look at all of your sources of debt. Potential sources of debt include:
- Credit cards
- Student loans
- Auto loans
- Mortgage loans
- Personal loans
- Payday loans
- Medical debt
Some people make the mistake of ignoring their debt and allowing it to build without ever taking the time to see how much money they actually owe. While I was in college, I was terrified to log into my online banking to see my balances.
Don’t be one of these people. Make sure that you are always aware of how much you owe. Knowing how much you owe is the first step towards actually paying it off.
Choose your payoff strategy: Avalanche vs Snowball method
There are two primary strategies that people use to pay off debt: the Avalanche Method and the Snowball Method.
With either method–and any effective debt repayment plan–you’ll be paying at least the minimum payment on each of your debts each month.
The difference between the Avalanche and Snowball methods of debt repayment comes down to how you apply additional payments toward your debts.
After making all of your minimum payments, use any additional funds to pay down your debt with the highest interest rate. The Avalanche Method is the most mathematically-sound method for paying down debt as you’ll pay less interest than any other methods.
With the Snowball Method, you put any additional funds toward your smallest debt (after making your minimum payments). The Snowball Method can be psychologically rewarding as you’ll enjoy the satisfaction of paying off debts sooner than with other methods.
Avalanche vs Snowball method: which is better?
If you want to pay off your debt as efficiently as possible, the Avalanche Method is the best option. You’ll pay off your debt faster and pay less in interest, allowing you to use that money elsewhere instead.
No matter which debt repayment strategy you use, remember to (1) make at least the minimum payment each month, and (2) continue paying the same total amount toward your debts, whether you put the additional money toward the highest interest rate or balance.
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Create a debt repayment plan
Paying off your debts isn’t going to be easy or happen overnight. That’s why it’s critical to have a solid debt repayment plan that features considers the following.
Stop taking on more debt
If you want to ever get out of debt, then you need to stop making the problem worse.
Paying off your debt requires making a bigger commitment to living within your means.
Do you generally stick to your budget but occasionally add to your credit card debt when you find yourself faced with unplanned expenses?
In that case, building your emergency fund to $1,000 may delay your debt repayment plan, but will keep you from taking on additional debt if need to make a basic car or home repair, emergency room trip, etc.
By committing to getting yourself out of debt, you’ll need to put any plans to upgrade your car, home, or any other financed purchases on hold.
Of course, those major purchases don’t happen frequently. Your biggest enemy in the effort to avoid debt will be credit cards. Leave them at home, remove them from your browser’s history, and avoid memorizing your credit card info if it’s not already too late!
Always make the minimum payment – at least
Never miss the minimum payment on your debts and loans. Doing so will:
- Cost you “late fees” that could’ve been put toward your debt instead
- Postpone your payoff dates (increasing the amount of interest you pay over the loan)
- Drop your credit score (which can increase your interest rate on future loans)
Automation is the best way to make sure you always make your minimum payment. If you’re worried about not having the money on the due date, schedule an automatic payment to be made the day after you receive your paycheck instead.
Review your budget to reduce your expenses
The more money that you can put towards making additional payments, the faster that you will be able to pay down your debt.
So, save money where you can to put it towards making additional payments.
The most effective way to do this is by focusing on your major three expenses:
Temporarily moving in with roommates or trading your car for a bike or bus pass can greatly accelerate your debt payoff journey.
If that’s not an option, you can still make progress on getting out of debt with smaller changes: making coffee at home instead of buying it on your way to the office, eat leftovers or prepared meals for lunch instead of going out to eat, or canceling your gym membership to work out at home or the park instead.
Increase your income to earn additional money to put toward debt
On the opposite end of the spectrum… The higher that your income is, the faster that you can pay off your debt.
There are a few different ways you can do this:
- Find a higher paying job
- Ask for a raise at work
- Work a second job
- Start your own side hustle
We’ll take a closer look at these options later. You don’t need to do them all, but any additional income can shave years off your debt repayment if you use that money effectively.
Make high-interest debt your top priority – except for a small emergency fund and employer match
Credit card debt, payday loans, and personal loans…
These three types of debt almost always have high-interest rates, and often astronomically so. Let’s define “high interest” as anything above 7-8%. Paying off these forms of debt as quickly as possible is your top financial priority.
There are only two financial goals that may take precedence over paying off your high-interest debt:
- Build a small emergency fund ($1,000 of savings) that can help you avoid more debt if end up with unplanned and unavoidable expenses
- Contribute enough money to your employer’s 401k plan to receive the full employer match, if offered (free money!)
Otherwise, it’s “all hands on deck” to earn or save as much money to pay toward your debts as possible!
How to reduce your interest rates
Before talking about ways to get out of debt faster, let’s talk about interest rates.
Lowering your interest rates can go a long way toward helping you pay off your debts faster as more of your money goes toward the principal (the original amount of the loan) instead of the accrued interest.
Here are some ways you can potentially reduce your interest rates.
Refinance or consolidate your loans
What’s the difference between refinancing and consolidating?
Refinancing is getting a new loan with a lower interest rate. Consolidating is combining multiple loans into one monthly payment.
Both refinancing or consolidating can result in a lower interest rate depending on the state of the financial economy or if you’ve improved your creditworthiness since originally taking out your loans.
You can use Credible.com to find good refinancing options for your loans. You can also compare the interest rates for many different student loan options.
When I applied for student loan refinancing through Credible, I found that their best rates available were lower than my private loans (through Wells Fargo) and similar to my federal student loans.
In addition to offering student loan comparisons and debt consolidation options for your existing loans, Credible also lets you view personal loans from 11 different loans. This can help you to find the loan with the best interest rate.
Zero-percent credit card balance transfer
Many banks offer credit cards with a promotional 0% interest rate that lasts somewhere between 6-18 months. You can typically pay a 3-5% transfer fee to move a balance from a high-interest card to the account with this promotional rate.
If you have a limited amount of credit card debt that you can confidently pay off during the promotional period, this can be a great way to get out of debt while paying less interest.
One word of caution: it’s easy to end up in a vicious cycle of transferring your balance between zero-percent cards to continually postpone paying off your debt (aside from the transfer fee).
Don’t let these promotional balance transfers keep you from taking responsibility for your finances!
Call and negotiate your rate
It’s possible to call your creditor (the company you owe money to) and negotiate a better interest rate with them.
Reach out to your creditor and let them know if you’ve:
- Maintained a history of on-time payments
- Recently lost a source of income, or
- Experienced personal hardship or emergency expenses
Most creditors would prefer to lower your interest rate rather than stop receiving payments or lose the entire balance to a debt collection agency.
While there’s no guarantee, it never hurts to ask!
Ways to get out of debt faster
By default, most forms have debt have a payoff date that’s far off in the future. After all, the longer you carry your debt, the more money the creditor will earn in interest charges (which is why you can keep a revolving balance of credit card charges).
If you don’t want to wait years–or decades–to pay off your debt, here are a few ideas that can help you get out of debt faster.
Change your mindset about debt
Sop thinking about debt as something that’s outside of your control, can’t be fixed or will be dealt with in the future.
Instead, start thinking about it as a problem that you can definitely solve with consistent effort. Start cultivating a proactive and positive mindset about your debt repayment. Winning the lottery isn’t a viable debt repayment plan; you’ll need to find a way to make it happen on your own!
There are people all around the world who have paid off huge amounts of debt on varying amounts of income. It’s not easy, but you can do it!
(If you have a debt success story, consider sharing it in the comments below!)
Pay more than the minimum payment
Paying more than the minimum payment is the starting point toward getting out of debt faster.
By paying more than the minimum payment, you reduce your principal amount faster. Your principal is the amount of money you owe before interest is calculated. Lowering your principal also reduces the amount of interest you pay with each payment.
If you aren’t sure how you can afford more than the minimum payment, revisit the topic of budgeting earlier in this post.
Making a big change to your budget–especially in a category like housing, transportation, or food–can rapidly increase your debt payoff, but don’t underestimate the little changes like canceling a subscription or finding cheaper ways to have fun when you’re bored.
Start a side hustle
Whether you want to drive for Uber, host an Airbnb, or offer freelance services on Upwork, technology has made it easier than ever to earn money.
If you’re trying to get out of debt as quickly as possible, making money with a side hustle can increase your personal income substantially. In fact, some people eventually make more money with their side hustle than they do with their full-time job!
Start with whatever side hustle sounds the most interesting or rewarding to you. No matter your skill set, there’s a good chance you find ways to make extra money by doing something you’re good at–and hopefully, even enjoy!
Pick up a second job or overtime
While side hustling often involves setting your own hours and working for yourself, there are other ways to earn money with a little more reliability and structure.
Having a second job or working overtime at your primary job is an often overlooked and underappreciated way of making more money to put toward your debt.
When you work overtime, you’re typically compensated significantly more than your normal working rate. If you’re an hourly employee that gets paid time-and-a-half, don’t miss this option!
You may have to cut some time out of your social life in order to work a second job or to work overtime.
Just remember: You don’t have to do it forever. (And working a second job may actually help you meet new people!)
Ask your boss for a raise
If you’ve been at your current employer for a while, and you’ve performed well or taken on new responsibilities, there’s a good chance you can successfully get a raise.
Some companies schedule annual performance reviews where potential compensation changes normally happen. However, if that’s not the case, you may have to ask your boss for a raise in order to get it.
Although it can be frightening, there is little harm in asking your boss for a raise–especially if you are a good performer. However, the upside on your income and debt repayment can be huge.
Do your job well, do your research on what you deserve, and find the appropriate time to ask.
Sell your unused possessions
Most people have at least some stuff lying around their homes that they do not use anymore.
It could be clothing, musical instruments, video games, electronic devices, or even old furniture.
Rather than let those items go to waste, why not have a yard sale? Or put the items for sale on Facebook or a classified ads website?
While it may take some time to organize, price, and sell the items, there’s a good chance you can earn some extra money to put toward your debt while decluttering your living space in the process.
Getting out of debt will not only help you feel emotional relief, but also open the door for you to start putting your money toward better goals instead – whether it’s building your savings, buying a home, or investing for the future.
While it takes a lot of hard work and discipline, remember these basic steps for paying off your debt:
- Know how much you owe
- Choose the payoff strategy that works for you
- Always make your minimum payments – at least
- Cut your expenses to free up more money for repayment
- Earn additional money to put toward your debt
- Reduce your interest rates if possible
Following these steps will help you get out of debt, no matter how much you owe. Don’t let debt weigh you down and continue to be a burden on your life.
Freedom from debt–rather than living beyond your means–will help you live your life to the fullest!