When you’re in debt, you might feel alone. But you’re not – total household debt reached $17.5 trillion last year. Creating your own get-out-of-debt plan 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.
Here are 10 ways to help you get out of debt fast.
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 a fundamental change that has to happen. To help 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 to help you get rid of debt quickly is to figure out where your money is going. It can be difficult to decide where to make budget cuts without having a full picture of where you’re spending.
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 several ways to help you track your money. Some of the most common ways include:
- Use a budget worksheet or Money Sensei®
- Keep notes in a notebook
- Download a money tracking 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.
Creating a budget goes hand in hand with tracking your spending. Tracking your spending can help show you the places where you need to cut costs. Of course, you may also find places that need changes you may not want to make. It’s important to find a balance between livability and a strict budget to help you 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 should 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. 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.
Bonus Tips:
How to Reduce Expenses
- Cut cable/satellite TV and switch to lower-cost streaming services
- Lower grocery bills by meal planning, using coupons, and avoiding food waste
- Reduce energy costs by adjusting thermostat and unplugging electronics when not in use
- Cut back on dining out frequently and make coffee/lunch at home
- Cancel unused subscriptions and memberships
- Find free or low-cost entertainment options in your community
- Renegotiate bills such as cable, internet, and cell phone plans
How to Increase Income
- Ask for a raise at your current job
- Get a part-time job or side gig (tutoring, rideshare driving, freelancing)
- Sell unwanted items online or at a garage sale
- Rent out extra space, such as a room or rental unit
- Take on odd jobs like dog walking, yard work, handyman tasks
- Look for a higher paying job if your current income is too low
How to Allocate Funds for Debt Repayment
- Use a debt payoff method such as debt snowball or debt avalanche
- Pay more than just the minimum amounts due
- Apply tax refunds, bonuses, and windfalls directly to debt
- Set up automated payments to help avoid missed payments/late fees
- Track progress and celebrate small victories
- Consider consolidating debts into one new loan with a better interest rate
- Follow a structured plan to help keep debt repayment on track
4. Create a Plan to Pay Off Debt: Try the 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 help 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 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.
Here’s an overview of the debt snowball method:
- List your debts. Write down all your debts, including the total amount owed for each one. Don’t worry about interest rates for now, order them by smallest balance to biggest balance.
- Minimum payments only. Allocate enough money from your budget to cover the minimum payment for each debt.
- Attack the smallest debt. Put your extra money towards your smallest debt. The goal is to pay it off completely as soon as possible.
- Roll the snowball. Once you’ve paid off the smallest debt, take the money you were paying towards it and add it to the minimum payment of your next smallest debt. This is like rolling a snowball, your payments get bigger as you go.
- Repeat. Keep repeating steps 3 and 4 until all your debts are paid off!
Here’s an example: Imagine that you are dedicating 20% of your monthly income to your debts, which comes out to approximately $300. If you have three debts, you would pay $50 to one, $50 to another, and $200 to the third. 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.
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.
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 debt every month. Remember the debt snowball method – every chance you have to make higher payments can 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 and make payments early can 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 help 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.
Consider a debt management plan, which can help 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 want to keep your business and may offer some other options to get a lower monthly payment.
Some bills that you could consider lowering include:
- Cable bills
- Phone bills
- Insurance
- Electricity
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 likely see an improvement in your situation.
8. Create a Family Budget
While it’s common for one person to handle the finances, including everyone in the budgeting process can help create a stronger financial team. This transparency allows everyone to be aware of your financial goals and work together to achieve them.
Have an open discussion with your family about your financial situation, including debt you’re working to pay off. Explain your plan and how you can all contribute to reaching your goals faster.
Getting everyone involved in tracking spending and creating a budget helps build a sense of ownership and accountability. This can help ensure everyone is on the same page when it comes to saving and spending.
There might be times when adjustments need to be made, such as scaling back on holiday spending or delaying a large purchase. These conversations can be a great opportunity to teach kids valuable personal finance skills such as budgeting and saving.
Involve your children in the budgeting process by setting age-appropriate goals together. This can help them understand the value of saving and make them more mindful of spending. They’ll be more invested in reaching shared goals and become part of the solution!
9. Be Open to Adjusting Your Budget
Life happens in an instant, and you may not have the income bandwidth to survive an emergency, sudden change, or another altering scenario. 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 can help keep you on track if things go south. If you’ve done all of the prep work and put your budget in writing, it can 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 when 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 for 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
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 begin the process of getting out of debt today.
Financial Planning Strategies for Long-Term Success
Build an Emergency Fund
About one in four U.S. adults have no emergency savings at all. Having an emergency fund can provide an important financial safety net to help you avoid going into debt when unexpected expenses arise. Aim to save enough to cover three to six months’ worth of living expenses. Build the fund slowly by allocating leftover money each month after making minimum debt payments. An emergency fund can help prevent you from relying on credit cards or loans when issues such as a car repair, medical bill, or job loss occur.
Invest for the Future
While paying off debt is the priority, it’s also important to balance that with investing for long-term goals such as retirement. Consider contributing even small amounts to retirement accounts such as a 401(k) or IRA, which allows tax-advantaged growth over many years. Low-cost index funds are an easy way to start investing without having to research individual stocks. The sooner you start investing, the more time your money has to grow exponentially through compound interest.
Manage Credit Wisely
Maintaining good credit habits is key after paying off debt to help avoid falling back into the same trap. An important guideline is keeping credit card balances below 30% of your total credit limits to positively impact your credit utilization ratio. Making all minimum payments on time every month is also crucial.
Key Takeaways: Get Out of Debt Fast
- Getting out of debt requires dedication, planning, and strong self-discipline.
- The first step is to stop borrowing money altogether. Cut up credit cards and avoid new loans.
- Understand where your money goes by tracking all monthly bills and daily spending for at least a month.
- Create a realistic budget that allocates funds and prioritizes debt repayment.
- Choose a debt payoff method such as the debt snowball (focusing on smaller debts first) and stick to it. Aim to pay more than the minimum amounts due on your debts.
- Consider options such as debt consolidation or negotiating lower interest rates with creditors.
- If you have a family, discuss your debt situation and repayment plan with them. Their support and participation are crucial.
- Don’t be afraid to seek professional financial help if you’re struggling.
