If you are fed up with high-interest rates from bank loans, credit card debt or other forms of debt, then it is time to learn the right strategies to help you become debt free faster.
Paying off your debt in a short amount of time is possible with the right techniques. But make no mistake, this is not for the weak. If it was that easy, 77% of American households would not carry an average of $58,000 in debt.
Even if a loan carries a lower interest rate, it’s a good idea to pay it off. The less money you owe to someone, the more financial freedom you’ll experience. Ideally, you should only have your mortgage as the only form of debt. And even then, paying off your mortgage fast will set you up for life.
In this article, we’ll go over some modern ways to tackle debt at a fast rate.
There are two ways you can do this:
- Pay the minimum amount twice or more per month.
- Increase your monthly payment amount to double your usual payment.
This strategy is basically the same. If you like to pay your cards once a month, choose option two. But if you don’t mind paying a few more times during the month, then go with option one.
How we did it: How We Paid Our Mortgage In Less Than Five Years
2. Use a Debt Payoff Calculator
Learning how long it will take you to fully settle your debt empowers you to make the right plans and take corresponding actions. You need to find out how much you have to pay each month so you can align your budget accordingly.
To accomplish this, use a debt payoff calculator. Credit Karma has an easy-to-use credit repayment calculator that is free.
For example, if you wanted to pay $5,000 in 12 months, your monthly payment would be $458. The interest paid on that debt over the course of one year is about $500 at an interest of 18%.
If you are serious about paying down your debt, you have to do this calculation before doing any of the other steps outlined in this article.
3. Learn to Budget Better
Another tip for paying off debt quickly is upgrading your budget skills.
When you run your personal finances like a business, your sense of responsibility increases exponentially. Businesses have revenue goals, expenses, good team members and sometimes irresponsible team members, just like a family.
A thriving business also has a good idea of where the money is going and priorities for where to spend the money. It’s no different in your personal life.
Having a budget helps you categorize your expenses and understand where each dollar is going. And when you optimize all your expenses, you end up with more dinero in your pocket to use towards your debt.
4. Tackle One Debt at a Time (Snowball Method)
One effective debt payoff strategy is to tackle one debt at a time. This method, often called the “snowball method”, involves paying off your debts from smallest to largest.
By focusing on paying off one debt at a time, you can see how far you’ve come, and in turn this can keep you motivated. Additionally, as you pay off each debt, you’ll have more money available towards the rest of your payables.
If you are interested in learning more, Dave Ramsey has a great article on how the debt snowball method works.
If you’re looking to pay off your debts fast, now is the right time to suspend or get rid of your credit cards.
Don’t get me wrong; we are big advocates of using plastic to pay for monthly expenses. As long as you can pay your card in full at the end of the month, using credit cards helps you increase your credit score.
However, credit cards can also keep you in debt as they make it easy for you to borrow more money with high interest rates. If you know you have a problem using credit cards to pay for stuff you can’t afford, have someone hide them so you can’t find them unless it’s an emergency.
Putting the cards away will give you the discipline you need to stay on track with your financial goals.
After you have optimized your spending habits and created a budget, look for ways to make more money. A side hustle can help you increase your income and channel more money to repaying your debt.
With many money-making opportunities available online, finding a suitable side hustle is no longer a hassle. With just a smartphone and stable internet connection, you can find remote jobs to earn some extra dollars from the comfort of your home. Some common side hustles include:
- Affiliate marketing
- Walmart Plus driver
- Instacart grocery person
- Dog walker
- Cleaning gigs
- Uber driver
- Virtual Assistant
Increasing the money you bring is the fastest way to pay off loans.
But it is a balancing act.
You have to balance making more money while spending less at the same time. If you allow lifestyle inflation to creep into your life, all that extra money from your side hustle will go towards more unnecessary expenses.
7. Take advantage of 0% interest rate
If high-interest rates are your worst enemy, then 0% interest rate is your best friend. This is another great strategy for paying down your debt in a hurry.
There are many credit cards that will offer you 0% APR for the first 15 to 24 months. The plan is to take your highest interest debt and transfer the balance to the new credit card, where you pay no interest for that initial period.
The money you save from not paying interest can help you quickly reduce your overall debt.
Also, you need financial discipline to make this work. Since you only have about a year to pay off your debt before it accrues high interest, you must get on a budget and practice frugality.
8. Negotiate your debt
Yes, you can negotiate your debt and lower the amount you have to pay. Or at the very least, defer payments.
If you’re in collections: Expect to pay 10% of your original amount. Whatever company purchased your debt from the original holder will be more than happy to get 10%. Make sure they put it in writing first.
If you have student loans: President Biden has announced a relief program for borrowers who need it most. Get all the information you need and check if you qualify to get your student debt erased.
Many lenders are ready to work something out for you if you can show that you’re under financial stress. Having a solid story helps to negotiate better terms.
9. Prioritize your goal
If you are serious about reducing your debt in a short amount of time, make it a priority.
But, how can you tell if you are serious about paying debt?
You make changes in your life.
When someone plans to pay their debts quickly, you expect to see the following changes:
- Reduce unnecessary spending.
- Avoid going to expensive restaurants.
- Create a budget and stick to it.
- Educate themselves in personal finance.
- Become an avid reader of GoodDinero.
The behaviors listed above are an indication that you are ready to live debt free. I encourage to further educating yourself in finding apps like Honey and seeing if these are worth it for you and your plan.
10. Evaluate your expenses
Do you know why 36% of people making over $250,000 a year live paycheck to paycheck?
It’s because of uncontrolled spending. The more they make, the more they spend.
It’s pretty simple to figure out that living below your means is the best way to cut your debt in half or even eliminate it altogether.
But how do you keep your costs down?
First, you need a budget, where you categorize all your expenses on a list.
Second, you need to go line by line and find ways to cut stuff that doesn’t bring any happiness. Alternatively, you can shop around for more cost-effective services that offer you the same but for less money.
11. Do a garage sale
When you have exhausted all other options listed in this article, generating money from a garage sale can go a long way. People who are serious about getting out of debt fast will do anything that moves the needle forward.
Look around your house. There’s so much stuff that other people can find useful. Stuff you haven’t even touched for years.
The best way to do a garage sale is to do an inventory of the items you don’t need and create a garage listing on craigslist or Facebook. The proceeds from the garage sale can help you pay off debt.
Get out of debt quickly.
Debt is a major drag on most families, but it doesn’t have to be. Jess and I became debt free in our early thirties by living frugally and by applying most of the advice we outlined in this article.
You can do it too. Like most people, we started from scratch and never had a job that paid anywhere close to six figures. It was all about building financial discipline step by step. It takes time to create the necessary financial habits that get you out of debt fast.
Give yourself permission to fail, but also keep yourself and your partner accountable for your financial goals. Goals like getting rid of debt will increase your overall happiness. It’s certainly made us much happier to know we owe nothing to anyone.