11 Tips to Pay Off Debt Quickly
It can be overwhelming to figure out a plan to get out of debt and onto a path of financial independence and freedom. Especially if you're living paycheck to paycheck and it feels like you can't get ahead.
I've been exactly where you are. And not that long ago. But having been through it (we've got about $4,000 in consumer debt left to pay off), I'm here to tell you that it is possible to work your way out of debt!
Here are 11 tips to pay off debt quickly that I hope you'll find useful.
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Be honest with yourself
This should always be the very first step.
Don't guesstimate how much you owe. Write every debt down on paper or in a spreadsheet. It'll suck at first but hopefully will give you the wake up call you need. This process really opened our eyes to where we were with our finances.
We figured we had a few thousand dollars on credit cards but were shocked when we actually sat down, pulled out all our credit card statements and added them up. We were more than $10,000 in the hole.
To be honest, the number was closer to $13,000. We also started reading the fine print and found out that if we continued carrying balances, our payoff date on this amount would be 6 years!
A few tips:
- Don't leave anything out! Gather all your bank statements, credit cards statements and student loan statements.
- Create a spreadsheet listing all your debts and total them.
- Make a big chart! Visual aids are everything.
Build up your Emergency fund
You need an emergency fund before you start paying off debt so that when unexpected expenses pop up, you don't have to go into debt to deal with them. Dave Ramsey recommends $1,000 for your baby emergency fund. However, use this as a starting point and ensure that you have enough in your emergency fund that will make you feel comfortable. For us, that number ended up being closer to $2,000 since we are landlords and some of our income can be variable.
Stop taking out more credit
Building off of the last point, you'll have a pretty hard time paying off debt quickly if you keep adding to it. Some ideas? Freeze your credit card or cut it up into small pieces! That way you can't use it. Another tip that might be helpful is to wait 30 days before making a big purchase. This will allow you to save cash to buy it or consider whether you really need it in the first place.
Consolidate if you can
We took advantage of a 0% APR balance transfer offer from our bank which allowed us to save a considerable amount of interest. It also gave us another incentive to meet our goal of credit card debt freedom because the offer came with a deadline!
If you would like to see a detailed explanation of balance transfers and how they work check out this article.
Refinance where possible
This offers an excellent option to reduce the money you are spending on interest. In 2016, we refinanced our mortgage saving $600 per month. It took us 3 months to close on the refinance and lots of work but it was totally worth it.
Did you know that you can also refinance your private student loans? If you've got a stable job, good credit score and are ready to tackle your debt head-on, then I recommend this FREE tool called LendEDU. This tool lets you compare student loan refinancing options from 12 companies to see how you can potentially lower your interest rate and save thousands of dollars. I highly recommend them and love that completing their 90-second application doesn't hurt your credit!
Reduce your expenses
There are so many ways to completely scale back your lifestyle. Here are six examples that you can start THIS MONTH:
- Find somewhere cheaper to live.
- Take on a roommate.
- Cancel cable and watch Netflix or Hulu.
- Downgrade your data plan.
- Cook all your meals at home.
- Break up with Starbucks.
Get your income up
Don't wish for it. Work for it. There are SO many options available right now that can bring you extra money month after month. Many of these require very little in terms of getting started. Here are some easy ways to make extra cash this month:
- Mow lawns, rake leaves or shovel snow (depending on the season...and your location)!
- Flip stuff on eBay or Craigslist.
- Tutor kids in a subject you're good at. A friend of mine is making $30-40 an hour as a tutor!
- Become a dog walker!
- Or ask for a raise.
- Become a freelance writer! Last month I earned approximately $1500 on the side as a freelance writer!
Use a cash based budget
When the cash is done, so is your spending!
I found this great guide to cash budgeting that you can check out below:
Settle bad debts where possible
One tip, I've heard from Dave Ramsey is to never give any debt collector electronic access to your bank account. This opens you open to a huge risk that they'll take more money than agreed to on the phone. A few ways to overcome this: "send a money order overnight or wire the cash to them. You can also send a cashier’s check."
Oh, and always get the settlement amount in writing.
Try using the debt snowball
- Order your debts from smallest to largest.
- Ignore interest rates or payoff dates.
- Attack the smallest one first!
- Throw any extra money at your smallest debt first while continuing to make minimum payments on the rest of your debts. (This is important!)
- Once you finish paying off debt numero uno, it's time to roll the amount you were paying on this debt into the next one on your list.
- The idea is to build momentum and keep moving forward quickly.
Or consider the avalanche method
With this method, you'll focus on targeting your highest interest rate debt first while continue to making minimum payments on the rest of your debts. It's logical, because this is your most expensive debt! You'll throw any extra income at this debt until it's extinguished before moving on to the next one. Usually, with this method, you'll find that you pay off your debts quicker and save more money on interest. But remember, unlike the snowball method, you may have to wait a long time before you can start celebrating the small wins if your highest-interest debt is the biggest one.
BONUS: Start today
Do not wait another minute. Every week set a goal for yourself and your money. Whether that's saving $10 a day or making an extra $20 a day. You have the power to turn your biggest money aspirations into a reality by getting on a solid plan to do just that.
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