If you’re in debt, you know the burden of having to make those monthly debt payments. If you could find a way to pay off debt fast, imagine the freedom you’d feel.
What would you do with the hundreds of dollars you’re spending on debt payments right now? Pay cash for a house? Take your dream vacation?
Invest the money and retire early? I’m sure there are dozens of things you could think of to do with that money, so why not get started paying off that debt?
Table of Contents
5 Steps to Pay Off Debt Fast
By following these five steps, you can pay off debt fast. Really fast. Note that while the steps are easy, you will need to be disciplined to get the debt paid off.
But anything worth having takes discipline. Ready to start?
1. Assess Your Income and Monthly Expenses
In order to pay off debt fast, you need to know how much money you’ve got coming in and how much you’ve got going out.
Write down your monthly take-home pay. Then, write down every expense you have during the month.
Don’t forget debts, housing costs, utility costs, personal care like salon visits, pet costs, gift costs and entertainment costs. You may want to add in another $100 or $200 for things you may have forgotten.
After you assess these two numbers, you should have a leftover amount of cash. This “leftover amount” is important. Why?
Because you’ll need it later. What if you don’t have a leftover amount? What if you’ve got more expenses than you do income?
If that’s the case you’ve got two options:
- Decrease your expenses
- Increase your income
Decrease Your Expenses
It might not feel like you’re spending more than you need to on life, but there is a 95% chance you can find somewhere to cut your expenses.
Don’t believe me? Change your mindset for a minute. Imagine for a moment that your financial situation has just changed drastically.
You’re in a situation where you can ONLY spend on bare necessities. You’re desperate. What would you do?
Cancel gym, cable and other memberships and descriptions? (Trim can help you with this).
Switch to a cheaper salon or stop going to the salon altogether? (DIY your nails and eyebrows).
Sell your car and get a cheaper one you can pay for with cash? Or at least get a much smaller payment?
Go “Extreme Cheapskate” on utility usage and other fluctuating costs?
Call necessary expense companies like auto insurance and try to negotiate a cheaper rate?
Find a cheaper place to rent or get a roommate? Rent out a room in your house?
Ban eating out and takeout meals?
You’d find a lot of ways you could cut down on expenses if you were forced to. So, just force yourself to reduce expenses–just for a little while–so you can find some extra cash in your budget.
Go through every expense you have and find a way to reduce or eliminate it.
Well talk later about increasing your income.
2. Decide on Your Debt Payoff Method
So, there are two main ways that financial aficionados and experts recommend to help you pay off debt fast:
- The debt snowball
- The debt avalanche
Using the debt snowball method involves listing all of your debts from smallest balance to largest balances.
You pay the minimum payment on every debt you have–with the exception of your smallest debt.
Then you take every bit of extra cash you have and make extra payments on that smallest debt.
When that debt is paid off, you take the minimum payment you were paying on that debt, plus all of your extra cash, and put it toward the next largest debt.
Just continue this pattern until all debts are paid off.
With the debt avalanche, you list and pay off your debts in order of largest interest rate to smallest interest rate. Take all extra cash and put it toward that largest interest rate debt.
Which One Should I Choose?
The debt payoff method you choose depends a lot on your personal psyche. The debt snowball method is great for your psyche because you’ll knock out a lot of debts faster because you’re starting with the smallest debts and working upward.
If you need extra motivation, the snowball is the way to go.
If you get more motivated by saving money, the avalanche is the way to go. By paying off the debts with the highest interest rate first, you’ll likely save more money.
So, if you get motivated by sticking it to the banks in a big way, go for the debt avalanche.
SO, you’ve got your debt pay off plan. Implement it immediately and get to work knocking out those debts.
3. Be Sure You Have Something in Savings
Listen, before you get too crazy on putting all of your extra cash toward debt, I want to encourage you to set aside some money in savings.
Dave Ramsey recommends $1,000. You’ll want to do this because if you end up with some unexpected expenses, you’ll want to pay for them in cash.
If you have no cash set aside, you could end up putting that unexpected expense on a credit card. That’s the exact opposite of what you want to do.
So make sure to put aside at least a few hundred dollars so you can have a cushion in case of emergency.
Want some tips on how to get that emergency savings fund started? Check out this post on ways to build an emergency fund fast.
4. Increase Your Income
Another vital step to help you pay off debt fast is to increase your income. You can do this in a number of ways. Here are some ideas.
Sell Your Stuff
I’m guessing you have a lot of “stuff” you truly don’t need or want. Old sports equipment, old electronics. Clothing and accessories.
Put it on Craigslist and get rid of it. If you’ve got electronics, DVDs or CDs, sell them to a site such as Decluttr.
Here is a list of some of the best places to sell used stuff you no longer want. Sell it quickly before you have a chance to change your mind based on an emotional decision.
You can always buy another one when you’re debt free. Tip: Don’t sell stuff with true sentimental value–you can’t get it back.
Advance in Your Current Career
Is there a way you could make more cash in your current job? Can you work more hours? Get a promotion?
Ask for a raise? Switch to a higher paying position within the company? Talk to your boss or HR rep about ways you might be able to earn more money at your current job.
Get a Second Job
If you can’t earn more at your current job, consider getting a second job. Wait tables. Deliver pizzas. Work retail.
Yeah, it’s gonna suck having to work more. Just remember it’s temporary–just until your debt is paid off.
And imagine how GREAT you’ll feel when you’re totally debt free.
Get a Side Hustle
Another option is to get a side hustle. In other words, start a small, one-owner business.
Use your gifts and talents to earn yourself some cash. What can you do? What are you go at doing? Are there things you like to do?
Make a list and use that list to figure out some side hustle ideas. Here’s a list to get your started.
- Mow lawns
- Wash cars
- Pet sit
- Walk dogs
- Start a mobile car washing biz
- Freelance your art, writing or graphic design skills
- Start an Etsy business
- Create an e-course
- Write an e-book
Are you good at cleaning and organizing? Start a cleaning/organizing business. Rent out a room in your home on Airbnb.
Take EVERY dime you make from your extra income avenues, and put it all toward debt pay off. You’ll be debt free in no time!
5. Stay Disciplined and Stay the Course
This is the most difficult step you’ll encounter as you work to pay off debt fast. After all, if paying off debt was easy, everyone would do it.
What tends to happen to a lot of people is that they get burnt out.
Or they get overly-comfortable once they start making some progress. As you can imagine, $10,000 in credit card debt feels a lot less urgent than $20,000 in credit card debt.
So it’s commonplace for people to get a good chunk of their debt paid off and think “I’m doing great! I think I’ll ease up a bit on my trajectory.”
Don’t allow yourself to get lulled into a false sense of security. Keep working until you’re totally debt free.
This is especially important if your true desire is to become financially independent.
I promise you’ll be glad you did. After all, no one ever said “I wish I wouldn’t have become debt free.” At least no one that I’ve ever heard of.
So stay disciplined and stay the course. Finish that race!
Now we’re going to tackle some of the arguments people use in favor of not paying off debt.
Good Debt vs. Bad Debt
As you think about paying off your debt, you might be wondering which debts to pay off.
You’ve probably heard people talk about “good” debt vs. “bad” debt.
Some money experts categorize debt into good debt and bad debt. For instance, bad debt includes credit card debt, car loans and unsecured loans.
Good debt includes mortgages and student loans. Some experts consider mortgages and student loans “good” debt because there’s a higher purpose to them.
For example, a mortgage loan will get you a house, which hopefully will accrue equity and increase your net worth.
Student loan debt, hopefully, will lead to a degree that will allow you to earn a higher income.
There are some truths to the “good debt” perspective. And it’s better to take on mortgage debt than to rack up credit cards on random purchases.
However, all debt places a burden on you. Having monthly payments and a large debt balance to a bank or other institution is, at its very core, bondage.
You are tied to that company until you don’t owe them anymore.
So while “good” types of debt may be less risky and have a higher purpose than “bad” debts, you’ll be doing yourself a favor by getting rid of ALL of your debt as soon as you can.
Paying Off Debt vs. Investing
Another common argument when it comes to paying off debt–especially good debt–is that investing your extra money is the smarter choice.
Some experts say this is a better choice because you’ll earn more money by investing than what you’re paying in interest on your good debt.
For example, you might be paying four percent interest on your mortgage loan. But your investment guy says he can get you eight percent on a mutual fund.
Yep, this might be true. In fact, the right types of investments have a decades-long history of earning an average of eight percent interest or more.
So you keep your mortgage and sock all of your extra money into a mutual fund. Twenty years later you’ve got a million dollars in investments, and you’re truly financially independent.
OR, five years later you lose your job and the stock market crashes. The country hits a major depression. The bank that holds your mortgage freaks out and calls the loan due in full.
You can’t pay it in full so you lose your house to foreclosure.
Or the mutual fund didn’t perform the way you hoped it would and you’ve barely gained a dime.
These scenarios aren’t LIKELY as you look at the history of the economy. But they DO happen and have happened in the past. The Great Depression. The Great Recession. The 2020 Pandemic.
Put some money in your investments. For sure. But at the same time, pay a few hundred extra on that mortgage each month and get rid of it.
The sooner you pay it off and are no longer tied to that bank or mortgage company, the better.
Change Your Perspective on Debt
As a society, we’ve become all too comfortable with debt. It’s simply something everyone has.
Everyone has a car payment.
Everyone has credit card debt.
Everyone has student loan debt.
Everyone has a large mortgage.
Everyone (okay, 70% of “everyone”) is also struggling financially. Don’t be like “everyone”. Buck the system and do things differently.
You. Deserve. Better.
Change your perspective in debt and start viewing it as “the enemy”. Debt makes you tied to your job. To a bank.
Debt restricts you from living your best life and from doing the things you really want to do. Kick it out of your life, ASAP.
Then start living life on your terms.
Don’t Forget Budgeting and Spend Tracking
When I first started looking at budgeting and spend tracking, two words came into my head:
Restrictive and boring.
But when I started doing both of those things (pleeeease do both), I got real happy, real quick.
Because budgeting gives you CONTROL over your money instead of letting your money control you.
And spend tracking (writing down every purchase you make) opens up your eyes to the black hole of spending where so many paychecks disappear to.
Have you ever wondered where the heck your money goes? It seems like you should have more money left over at the end of the month.
But you never do, and you don’t know why.
I KNOW WHY.
Random drive thru runs and box store purchases. Restaurant purchases. Gadget purchases. Lotto ticket purchases. Vice purchases like alcohol and tobacco that have gotten out of hand.
Listen. I’m not judging you. I’ve been in that same place. And life feels a whole lot better now that I’m directing, managing and controlling my money in a way that aligns with my goals and dreams.
It’s called value-based spending (spending on what you TRULY value), and you deserve the same.
Make a list of what you truly value in life. Time with your family? An annual vacation? Your dream job?
Then, when you have a chance to spend, ask yourself whether that expenditure is worth–or necessary to–delaying your valued goals.
If it is, make the purchase. If it’s not, consider walking away.
You Got This
Okay, you know what you need to do. Go. Do it. Pay off your debt and do it as fast as you can.
Use the tips above and get to work. Revisit them when you need to. Make motivational charts, poster boards or whatever you need to keep yourself motivated.
Celebrate with inexpensive celebrations like making your favorite restaurant dinners at home each time you get a debt paid off. Having little celebrations for each victory will help motivate you too.
You can do this. Just get up every day and remind yourself of your debt free goal.
Make your financial life what you want it to be and live life on your terms. You can achieve your dreams!