We’re a nation that loves debt. According to CNBC, the average American has $26,000 in debt (not including their mortgage). High-interest debt can be suffocating and prevent you from reaching your financial goals.
If you’re underwater, financial freedom feels like it will take too long to achieve. Luckily, it is possible to get out of debt on your own.
If you want to pay off debt faster, the following steps will help you succeed.
How to Pay Off Debt Faster
Many people believe debt is a normal part of life. It doesn’t have to be that way.
While debt usually results from numerous things, one of the most common causes of indebtedness is spending more than you earn.
Fortunately, it is possible to break the paycheck-to-paycheck cycle and achieve your financial goals. However, it does take hard work.
Here are ten ways to eliminate debt quickly, many of which I followed to pay off $50,000 in credit cards and student loans.
1. Get On a Budget
The first step to getting out of debt fast is to start a budget. People often think that budgeting is restrictive or difficult. Fortunately, that is not the case.
Budgeting helps you get back on track financially as it gives you the information necessary to see where you stand.
A budget allows you to get out of debt in three ways. These include:
- Showing how much you earn
- Letting you see where each dollar goes
- Showing how much you spend
Budgeting helps you identify areas where you can cut spending to free up more money to throw at your monthly payments.
If you don’t know how to create a budget, consult our guide. There are plenty of free apps that aid you in the process, but it’s essential to get started.
Apps like Mint are a useful resource to helps you stay on top of your finances. Most let you monitor your bank accounts, due dates on bills, and more to assist you in killing debt.
This is of particular importance if you’re missing payments and need to stop the cycle.
2. Consolidate Your Debt
Consumer debt, like credit cards, is guilty of having onerous interest rates. This usually makes the debt an even worse financial burden because it can add thousands of dollars in interest.
As a result, it may add years to your debt-free date. Nevertheless, you can speed this up through debt consolidation.
If you have multiple credit cards that all carry a balance, you are probably paying at least 15 percent on the indebtedness. You also likely have different due dates on each.
Consolidation reduces your payments to just one monthly payment. It also helps you lower your interest rates, often by half or more.
The best way to do this is by comparing multiple lenders at once through a loan marketplace.
Credible is a terrific solution as they let you compare rates from multiple lenders to identify the best choice for you.
When you choose a lender, they give you a personal loan you use to pay off your credit card debt. Then, you repay the loan.
Consolidating debt is often the fastest way to pay off debt quickly as it allows more of your monthly payment to go to the principal and not interest.
If you have student loans, you may want to consider consolidating or refinancing them as well. Read our SoFi student loans review to see why they may be a good choice.
3. Select a Payoff Method
Paying off debt is as much psychological as it is financial. You need to find a payoff strategy that works for you. Finding the right one helps you ease stress and achieve financial freedom.
The two most popular debt payoff methods are:
- Debt snowball
- Debt avalanche
With the debt snowball method, you put all your extra money towards your smallest debt first. Here is how the debt snowball works:
|1||List your debts by balance size|
|2||Make extra payments on the smallest balance|
|3||Pay off the smallest balance|
|4||Apply extra payments to the next smallest balance|
|5||Repeat the process until you become debt-free|
The debt avalanche works differently. It focuses on the interest rates of your debt. Here is how it works:
|1||List your debts by balance size|
|2||Make extra payments on the higher interest rate debt|
|3||Pay the minimum on all other debts|
|4||Repeat the process until you become debt-free|
The two differ in which is more important, whether it’s the momentum gained from paying off smaller debts or eradicating as much interest as possible.
Each method is a viable strategy for paying off debt. When you begin, determine the balance details on your debts to help you choose the method you find most motivating.
Identify what works best for you, then establish a repayment plan.
4. Find a Way to Make Extra Money
Increasing your monthly income is a terrific way to pay off debt faster. Yes, it’s important to reduce your spending or consolidate debt to achieve freedom sooner, but there’s only so much spending you can cut.
When I was in debt, I was a recent college graduate and had little extra income. I soon learned that making only the minimum payments would leave me in an endless cycle for years.
So, I sold plasma, delivered pizza, and sold items I wasn’t using. All the extra money I earned went towards my debt.
If the take-home pay from your day job isn’t sufficient, a side hustle is an excellent way to amplify your repayment process.
There are hundreds of ways you can make money on the side. Many of these can be done in your spare time and require minimal skills.
Our favorite option is to work for an on-demand delivery app like DoorDash. You can work on your own schedule and get $23 per hour while on a delivery,
DoorDash delivers restaurant meals and fast food to your home or place of work.
Commit to applying all of your earnings to your monthly debt payments because it greatly increases the velocity of payoff.
Alternatively, if you can, devote some of your earnings to establish a small financial safety net to help you avoid more indebtedness in the future.
DoorDash isn’t the only delivery app to work for. Read our review of the top delivery driver gigs you can work for to aid your efforts.
Get paid $23 per hour while on a delivery!
Deliver food with just a car or scooter. Get started today!
5. Stop Using Your Credit Cards
If you struggle with overspending, ceasing your credit cards usage is the first step you need to achieve debt freedom. This keeps you from making the situation worse.
Credit cards usually have sky-high interest rates. Continuing to use them as free money only makes the situation more difficult since your balance will continue to climb.
This strategy is difficult to implement, but it’s not impossible. There are several hacks you can try to stop using credit cards, including:
- Freeze the credit card (literally)
- Take them out of your wallet and only use cash
- Cut up the card(s)
- Give them to a trusted friend or family member and ask them not to give them back
There are other options you can try as well. Find what works best and get your credit cards out of your life so you can begin to pay down your debt.
This also applies to using apps like Klarna to make purchases. If you’re unable to ensure timely payment, don’t use them.
6. Pay More Than the Minimum
Raise your hand if you think making the minimum monthly payment is doing something. I thought that as well. Unfortunately, that’s not the case.
It largely only results in money going towards the interest and not the principal. This keeps you in the creditor’s clutches for longer.
For example, if you have $20,000 in credit card debt and you make the minimum payment, it will take nearly 20 years to become debt-free.
Regardless of if you have credit card debt, personal loans, auto loans, or any other high-interest debt, it works similarly.
Every little bit extra you can pay will save you money in interest and shorten your payoff time.
Again, a company like Credible can help lower your rates so you can accelerate your additional payments.
7. Take Advantage of a Balance Transfer
If your debt consists largely of credit cards, a balance transfer can be a legitimate way to get rid of debt quicker. But, it only works in certain circumstances.
Here’s how a balance transfer works:
- You move the debt from your old credit card to a new card
- You pay off the debt on the new card, while the old one is brought to a zero balance
Most balance transfer cards have a low or zero percent interest rate, and you have a set time to pay it off. Many cards allow up to 18 months maximum.
If you don’t repay the indebtedness in the given time, you may be charged interest on the entire balance you moved, starting from day one.
Some cards may also charge a fee of three to five percent of the balance when you open the account. Like any other credit card, they will also look at your credit score to determine creditworthiness.
This is not a repayment method without risk. However, if you’re committed and accelerate your payments, this can be a good way to eliminate debt fast.
Here are some cards to consider for a balance transfer.
8. Ask For a Lower Rate
Asking for a lower interest rate is a terrific way to kill debt. I used this trick to pay off my debt faster and save money on interest.
The less you pay in interest, the more that goes to the principal. This will save you money and likely shorten the amount of time it takes to kill your debt.
The best way to lower your rate is to call your creditor and ask for a reduction. It won’t hurt to ask, and even if they lower it by a few percentage points, it can be an immense help.
If you have a good history with the creditor, they will likely work with you. Additionally, they know that they might have to sacrifice more if you opt for credit counseling through a service.
Ultimately, they would rather receive less in interest if it means they’ll be paid in full.
If you have medical bills, don’t overlook asking for a lower rate either since they may be willing to work with you.
9. Streamline Your Spending
Attacking debt requires that you analyze your spending. This helps ensure more of your money is going to the indebtedness instead of holding you back.
Evaluate all of your spending and ask yourself a few questions:
- Am I receiving value from that purchase?
- When was the last time I used that service?
- Could I save money on that service?
Depending on your answers, you could free up more cash to apply to your debt. Canceling services you no longer use or negotiating lower prices are both terrific ways to get more money to pay off debt.
If doing either of these things causes you stress, Truebill is a free service that works on your behalf with vendors. When they help you save money, they keep 40 percent.
You can use those savings to pay your debt. There’s no charge if they don’t win you savings.
10. Know Yourself
While this method isn’t as concrete, it is the fastest way to pay off credit card debt. You need to know yourself, your spending triggers, and your daily habits.
It’s important to step away from whatever tempts you to spend. This is different for everyone.
My temptation was to go to the mall and buy something when I was sad or in need of a pick-me-up.
Staying away from the mall meant I wouldn’t spend money I didn’t have. Your temptation will be different.
It can be anything from turning off the TV, staying off the internet, or minimizing time with friends who encourage you to spend.
This doesn’t mean you avoid these situations forever. You just want to use the time away to learn how to decouple these scenarios from mindlessly spending money.
Which Method is Best to Pay Off Debt the Fastest?
Studies show the debt avalanche is the best way to kill debt quickly. The avalanche puts every spare dollar you can towards the highest interest rate debt while only making minimum payments on the rest.
The idea is that you eliminate the risk of interest keeping you from achieving debt freedom.
If you choose this method, you can increase your efforts with a higher-paying job or second job and devote the extra earnings towards the debt.
Regardless of whether you choose the debt avalanche or snowball, pick a plan that works for you and actively repay what you owe.
Is it Better to Pay Off Debt All at Once or Slowly?
A common myth is that it’s fine to repay your debt slowly. The thinking is that this strategy will help improve your credit.
In nearly every case, it’s always better to clear your indebtedness as soon as possible. That is especially the case for consumer debt.
The focus should be to lower your debt-to-income ratio quickly, not what repaying the debt will do to your credit.
Your credit will improve if you implement many of the ideas you use to kill debt.
It’s easy to believe it’s impossible to become debt-free, but that’s not the truth. It is possible to pay off debt quickly.
The key is to start your journey with a flexible plan. That will guide your debt payoff efforts and help ensure you will be free from the shackles of debt before you know it.
What’s one overlooked way to attack debt?
*Actual earnings may differ and depend on factors like number of deliveries completed, time of day, location, and expenses. Hourly pay is calculated using average Dasher payouts while on a delivery (from the time you accept an order until the time you drop it off) over a 90 day period and includes compensation from peak pay, tips, and other incentives.