Creating your own get-out-of-debt plan truly is possible, and it may be easier than you think. With some fundamental changes to your lifestyle, you can get out of debt fast–even with a low income.
However, turning around your financial situation doesn’t happen without some work. It requires commitment, planning, and strong self-discipline. But luckily, it gets easier over time as you build better spending habits.
Don’t wait to take back control of your life. There are many ways to get out of debt fast.
Check out these tips for paying off debt:
1. Stop Borrowing Money
The first and most important step in getting out of debt is to stop borrowing money. No more swiping credit cards, no more loans, no more new debt.
Reshaping your attitude toward money and debt is the most fundamental change that has to happen. In order to avoid digging yourself into a bigger hole of debt, you have to understand the true cost of swiping a credit card and taking out new loans.
Resolve to live on a cash basis while you make your changes. Don’t worry about debt consolidation or balance transfers at this point – you’re still in the early stages. You don’t want to trade one kind of debt for another until you understand your situation and have a plan.
2. Track Your Spending
The next step in getting rid of debt quickly is to figure out where your money is going. It can be difficult deciding where to make budget cuts without having a full picture of what you pay for and how you spend.
It’s best to track all of your monthly bills for at least a month as well as daily spending. Don’t forget to include your debt payment obligations while tracking.
There are a number of ways to track your money. Some of the most common ways include:
- Use a budget worksheet
- Keep notes in a notebook
- Download a money app
- Use banking app trackers
- Keep receipts
Whatever method you choose, make sure it is one you will remember to use every day and will help you get a full picture of just how much money you spend.
3. Set up a Budget
Once you’ve tracked your spending, it’s time to create a budget. By using your regular spending as a guide, this budget should account for all of your needs.
The tracking will also show you places to cut spending. You’ll be able to see where you’re spending too much and where you can easily make cuts without deeply affecting your life. Of course, you may also find places that need changes that you may not want to make. It’s important to find a balance between livability and a strict budget to get out of debt.
A vital part of the budgeting process is to put it in writing. It’s not enough to mentally plan how much you’re going to spend – it has to be recorded in concrete form.
It’s also important to include financial goals in your budget. Writing your goals down makes you 42% more likely to achieve them. For you, the goal to get out of debt fast is probably your #1 priority, but don’t forget building an emergency savings fund as well.
After your debts are paid off, you can come up with more goals to save. Just remember to add them to your budget in writing to hold yourself accountable.
4. Create a Plan to Pay Off Debt: Try a Debt Snowball Method
Now that your spending has been tracked and your budget is created, it’s time to implement a payoff strategy. If you need to clear debt fast, you’ll need to know exactly how to pay off debt with a plan that maximizes your payoff schedule.
One of the quickest ways to get rid of debt fast is by using the “debt snowball” approach. What is the debt snowball method? This strategy calls for you to make minimum payments from your monthly debt payment fund to all but one of your debts. This specific debt will get more than the monthly required amount and will be paid off quicker as a result.
When that debt is paid off, you choose another debt and reallocate all of the extra funds toward it. Keep repeating this process until all debts are repaid in full. Over time, the extra funds snowball, while the amount of money you dedicate to debt repayment stays the same.
For example, imagine that you are dedicating 20% of your monthly income to your debts, which comes out to approximately $300. If you have 3 debts, you would pay $50 to one, $50 to another, and $200 to the 3rd. Once the third is paid off, you’ll pay $50 to one and $250 to the other.
Remember to keep the total amount you put toward debts consistent. If you are putting $300 toward debts each month, and you pay off one of the debts, you’ll still be paying the full $300 toward debt the next month.
This method accelerates your repayment faster as debts get paid off. When trying to decide which debts to pay off first, you can sometimes focus on paying the debt with the highest interest rate first. However, which debt you choose to focus on might depend on your situation.
5. Pay More Than the Minimum Payment
If you’re trying to figure out how to get out of debt fast, you should try to put as much as you can toward debts every month. Remember the debt snowball method – every chance you have to make higher payments will bring you closer to being debt-free.
When you create your initial budget, set a minimum amount that you are putting toward debts each month. This should be around 20% of your total income. Of course, any opportunity to add more will help get you to your goals faster.
No matter what your situation, it’s important to pay more than the minimum required. Make this an ironclad habit. Even if you have a terrible month with unexpected emergency expenses, pay more than the minimum payment, if possible.
6. Consider Balance Transfers & Debt Consolidation
You may be one of the many consumers struggling to make ends meet with little to no income. If this is the case for you, how can you get out of debt fast with no money?
If you’re overwhelmed with too many payments and not enough income, you might be considering a balance transfer or consolidating debt to get rid of your extra payments quickly. However, you have to be careful about such strategies.
Transferring your credit card balance may give you a 0% introductory rate for a while, but transfers often come with an up-front fee. If the introductory rate only lasts for 12 months, you would have to pay the debt off in full before the year is up.
Debt consolidation loans might sound like an even better idea, but consolidating can leave you worse off than you started. Lumping the balances of five maxed out credit cards and seeing accounts with zero balances can be tempting. Without the strict combination of budgeting, lifestyle changes and making payments, you may find yourself with even more debt than you had before.
There are other ways to transfer debt that seem attractive but should be avoided. Specifically, using home equity loans to pay off revolving debt or dipping into your retirement savings. Why? It’s vital that you avoid trading good debt for bad.
But what is “good” and “bad” debt? Mortgage loans are good debt – they keep a roof over your head and help you build wealth steadily over time. Credit cards are bad debt – they typically have high interest rates and can easily ruin your spending habits.
Using home equity to pay off revolving debt is a short-term solution that may leave you worse off than when you started. Not only will you have put your home at risk to temporarily get your head above water, but you might also be back in debt with no equity to draw upon.
It is a better option to consolidate debt payments rather than consolidating debts. Instead of getting a new loan, use a Debt Management Plan and make one payment every month. This will keep you from incurring new debt and provide you with expert advice when you need it.
7. Renegotiate Credit Card Debt
Like many other consumers, you may be unaware that you can renegotiate your credit card contracts to pay a lump sum amount instead of costly monthly payments. This is known as debt settlement. But how do you negotiate a debt settlement?
All you have to do is ask. Give your creditors or lenders a call and request a lower interest rate on your credit cards. As long as your payment history is good, you have a chance of getting some relief.
You can also negotiate credit card fees. If your creditor is unwilling to work with you on a new interest rate, you may ask if they would be open to waiving some of the fees and recurring charges you face.
Credit cards are the only bills that can be lowered with a phone call. You would be surprised at how far a call can take you. Most companies will want to keep your business and will offer some other options to get a lower monthly payment.
Some bills that you could consider lowering include:
- Cable bills
- Phone bills
Don’t be afraid to shop around to find lower rates from competitors. Also, don’t be upset if a company tells you “no.” As long as you’re continuously making payments to all of your debts, you will see an improvement in your situation.
8. Create a Family Budget
It’s common to see one member of the family be responsible for all of the household’s finances. This often means that no one else in the household knows what’s really going on. If you’re going to be successful, it’s important to have a strict budget to pay off debt that the whole family knows about.
Come clean with your partner and family members. If they don’t know your full debt situation, then you’re going it alone. Tell them about the debts, your plan to pay them off fast and get them on board with your repayment strategy.
You need everyone in the house to participate in the tracking and budgeting steps. All the saving in the world does you no good if you live with someone who is spending without regard to the household budget. You have to involve them in this process and get them on the same page.
This might include some hard conversations. Your kids might have to accept a less-than-stellar Christmas or you may have to put off that big purchase they were hoping for.
If handled correctly, these types of conversations can be beneficial for kids. Budgeting and savings are excellent personal finance skills that may not be learned elsewhere. Keep them involved in the budgeting process and let them pick out specific goals to aim for. Focusing on this goal may make them less likely to splurge elsewhere and more helpful to you when it comes to keeping the family on a budget.
9. Create the Best Budget to Pay Off and Stay Out of Debt
Life happens in an instant, and you may not have the income bandwidth to survive an emergency, sudden change or any other altering scenarios. That is why it’s important to have a budget that is flexible and crafted specifically for you to support you in any situation.
Flexibility is vital to success and will keep you on track if things go south. If you’ve done all of the prep work and put your budget in writing, it will be easier to make the necessary adjustments.
Don’t be afraid to start completely from scratch and create a whole new written budget. If your life changes, change your plans along with it. Use what you’ve learned so far to create an even better budget than before.
There may also be times that you must adjust to a temporary budget. Sudden events that take a sizable chunk of your income may require you to have a particularly strict budget one month. Even one month of living really lean can help you catch up financially.
Don’t be too flexible, though. Any wiggle room in your budget shouldn’t allow big, unplanned purchases. The process of getting out of debt fast means making sacrifices. If you’re not committed to going without things you want, you’ll never succeed in getting rid of your debt.
10. Don’t Give Up: Get Professional Debt Help
At credit.org, we’ve provided professional debt help for consumers to become more financially literate and reduce their debt over the past 40-plus years. We know it’s possible to get out of debt no matter how tough it might look.
It’s important to remember that it’s not about how much money you make. High-income people can stay mired in debt their whole lives, and people with low incomes can live debt-free. Your spending habits can be adjusted to match your lifestyle. The sooner you develop those good spending habits, the better.
Remember, you don’t have to go it alone. There are qualified financial coaches ready to help you set up a debt repayment plan and get out of debt today.