Are you trying to figure out how to pay off debt?
I know exactly where you’ve been—wanting to get from under the crippling weight and limitations of being in debt.
Let me just say that it’s possible.
In fact, I paid off over $78,000 in student loan debt in less than 3 years and my husband and I paid off our mortgage in less than 4 years.
So I know firsthand that it’s possible to pay off a large amount of debt quickly. You simply need the right tools.
That’s exactly what I’ll be sharing in this post. So, consider this your comprehensive guide for paying off debt.
This post will cover:
So let’s start with answering the first question: why even bother paying off your debt?
Why should you pay off debt fast?
In a study done by CNBC, the average American will pay over $160,000 in interest alone over their lifetime. This calculation takes into account having a mortgage, automobile loan, student loan debt, and credit card debt—which is typical debt for most adults.
Essentially, the longer that you wait to pay off your debt, the more interest you accrue and have to pay. The result is $160,000 over your lifetime that is spent on interest payments that could have been used elsewhere.
So ask yourself what you can you do with $160K over your lifetime.
A lot! You can invest, start a business, and, change your family’s financial picture.
Ultimately, the result of not choosing to pay off your debt fast is that it hinders your financial goals and aspirations.
With that said, let’s consider “good debt vs bad debt.”
Good Debt vs Bad Debt?
There’s an ongoing debate about whether there is such a thing as good debt and bad debt. Before I share my thoughts on this as a financial educator, let’s explore what’s considered to be good or bad debt.
Types of Good Debt
Debt is often considered “good” if it helps you to increase your income, future earning potential, or net worth. Some examples of that would be:
- Business loan
- Student loans
Types of Bad Debt
On the contrary, “bad” debt is any money borrowed to buy depreciating assets that don’t contribute to your income or positive net worth. Some examples of bad debt would include:
- Credit card debt
- Car loans
But is there really such a thing as good debt or bad debt?
Well, my opinion is that debt is neutral— it is neither good nor bad.
Debt is debt.
With that said, debt comes with consequences. Namely, as the borrower, you’re at the will of the lender and you obligate yourself to pay those loans back.
Although you may use debt to fund “good” things, the consequences and responsibilities of owing money still remain—you owe money.
So let’s explore the steps to paying off that debt fast.
7 Steps to paying off debt fast
Before we jump into the actionable plan to pay off debt fast, there’s an important step that has to happen first.
That step is actually believing that you can get out of debt.
Perhaps enough credit isn’t given to having the right mindset when it comes to finances. But without belief, you won’t muster up the discipline necessary to be successful in paying off debt or reaching any other financial goal.
So first, believe that you have the ability to change your financial situation so that you can execute the next several actions.
Here’s what’s next.
1. Calculate how much debt you have
Oftentimes, calculating how much debt you owe is the hardest step in your journey of paying off debt. After all, it requires you to deal with the reality of how much debt you may actually be in, which can be scary.
But don’t worry, you’ll take this on one step at a time.
It’s possible that you can be making payments toward your debt, but not know the total amount that you owe. In this case, you simply need to add up your balances— including interest— to get a total amount.
You can find this information on your bill statement or within your online account.
To keep track of all of these amounts in one place, I recommend grabbing our debt payoff printables.
If you’re not sure if you have additional debt accounts, here’s what you can do to find out:
- Get a copy of your free credit report to see what open accounts you have
- Call your lenders to get the current balance
Once you have all of your debt balances, list them out and total up the outstanding balances.
2. Determine which debt pay off method you’ll use
Now that you know how much debt you have to pay off, the next important step is determining how you will pay it off.
Now, there are several popular methods for paying off debt. I’ll talk about each at a high level here and provide links to our more in-depth articles to learn more.
Debt Snowball Method
This debt repayment strategy prioritizes paying off your smallest debt first. And, as you pay off each debt, you will apply the funds from that payment toward paying off the next largest debt.
You can read our step-by-step tutorial on the debt snowball method to learn more about this method.
Debt Avalanche Method
With the debt avalanche method, you will pay off your highest interest debt to the smallest. This strategy is intended to help you save money on interest payments.
Another option for paying off debt is consolidating all of your debt into one loan. The idea here is to get a single loan with a lower interest rate; however, there may be fees and other costs associated with this method.
Similar to debt consolidation, a balance transfer will allow you to move your credit card balance to another card with a lower interest rate. Similarly, you can use a lower interest rate credit card to pay off the balances of other debt that may have a higher interest rate.
Choose a method that’s most appropriate for your financial situation. I’ve personally found success with the debt snowball method.
Nonetheless, you can read out post on determining which debt to pay off first to get more information about debt consolidation, balance transfer, and other payoff methods.
3. Create a budget
After deciding on the debt payoff strategy you’ll use, it’s time to actually put a plan in place to pay off your debt.
So, your next step is to create a budget that includes paying off your debt. This means that you’ll include a category for debt repayment and budget a portion of your income for paying off debt.
I strongly suggest reading our article on how to create a family budget. It goes into detail on how to create your budget to reach your financial goals, including paying off debt.
4. Increase your income
The truth is that you probably don’t have a pile of cash laying around to pay off your debt in one transaction. If that were the case, you’d already do it, right?
So, essentially, you’ll want to find ways to increase your income if you want to pay off debt fast. The more money that you have to throw at your debt, the faster you’ll be able to pay it off.
Below are a few things that you can do to increase your income:
- Pause your retirement savings
- Adjust your tax withholdings
- Start a side hustle
- Sell items in your home
- Reduce your expenses
I suggest checking out our video on 5 ways to quickly increase your income to pay off debt to get more details about these examples.
5. Reduce expense
Reducing your existing expenses is one of the quickest ways to free up cash to pay off debt.
There are likely some things that you are paying for that aren’t necessary and can be eliminated from your budget.
Here are a few expenses to consider reducing or eliminating altogether:
- Unused subscriptions & memberships
- Dining out
- Name brand goods
Remember, any additional money that you can put toward your debt will help you pay it off faster. I encourage you to read our post on frugal practices that you can implement to cut expenses and save money.
6. Stop getting into debt
It should probably go without saying, but if you want to pay off your debt fast you’ll need to avoid getting into more debt. Obviously, the more debt that you get into, the longer it will take to become debt free.
But, I’m sure the question remains: How do I avoid getting back into debt?
The key to no longer getting into debt is budgeting and saving for expenses and paying with cash. So, for example, instead of paying for expenses on your credit card, you’ll pay for it with cash.
To do this, you can leverage the cash envelope budgeting method and you can also use sinking funds to help save up for large expenses.
The great news is that once you’ve paid off your debt, you’ll have more cash available to reach your financial goals faster.
7. Celebrate your wins
It’s easy to lose motivation as you’re paying off your debt. Realistically, at times you may be discouraged and overwhelmed—especially if you have a large amount of debt.
In order to remain motivated, you need to celebrate your wins along the way.
This can be something as simple as buying yourself a cupcake or going out to lunch. Whatever you choose, do it consistently to stay motivated as you pay off debt.
Final tips for paying off debt faster
Everyone’s journey is different, so don’t waste your time comparing yours to the next person. Remember, your timeline for paying off your debt can be drastically different from someone else.
The goal is simply to do things at your pace to reach your ultimate goal.
Know that it’s possible, create a plan, and do the work.
In addition to this guide, you can read my book, Dump Debt & Build Bank: The Everyday Chick’s Guide to Money to learn more ways to pay off debt fast.