Life is too short to put off erasing debt. After all, debt is typically an individual’s number one obstacle on the road to financial freedom.
With that in mind, it’s vital not to only pay off debts, but also to eliminate them as fast as possible.
“Get rich quick” schemes abound, but the real secret to erasing debts quickly is simple and obvious: spend less, earn more, and hunker down. These 10 tips sketch the process out.
1. Face up to debt by writing it down
Conquering debt means understanding it. A person who doesn’t have a firm grip on how much he or she owes nor how much interest is compounding each month stands very little chance of achieving financial freedom anytime soon.
Despite that, many people avoid calculating how much they owe. Looking debt squarely in the face is simply too overwhelming and disheartening to bear.
Ironically, those who bite the bullet, calculate their total amount owed, and write it all down often find that these feelings of dread disappear once they actually figure it out. The debt is no longer a mysterious and oppressive force of nature; it’s a number to chip away at over time.
Calculating that number is not difficult, but it can be tedious. It requires you to collect all your account statements for the month (or call creditors for the figures). Then, calculate the total amount of the debts, the interest rates, the monthly minimum payments, and the payment due dates.
For bonus points, calculate how long it will take to pay off each debt if you only pay the minimum payments each month.
Crunching these numbers is not fun, but it’s foundational to getting out of debt quickly. Those who know what they owe, and to whom they owe it, can make moves and strategize. This is not a time when remaining in the dark makes sense.
2. Quit borrowing money
Someone used to funding life by borrowing money is going to have a difficult time quitting cold turkey. Whether you were running up credit cards to purchase luxuries you didn’t need, or you turned to payday loans every time you couldn’t make ends meet, you likely got used to having somewhere to turn when bank accounts ran dry.
Getting out of debt fast, however, requires not making things worse. Stop borrowing money at all costs. That means no new credit cards, no new credit spending, and no frivolous purchases.
3. Save up a $1,000 emergency fund
A $1,000 emergency fund can be the difference between getting out of debt fast or never getting out.
Think about it: if disaster strikes when you are already struggling with debt, how are you going to pay for it? You will likely need to borrow more just to get by.
With $1,000 in savings, though, you stand a much better chance of weathering the storm. It may be tough to save that much, but it’s the far more prudent alternative to driving up your debt even further.
4. Pay above the minimum, but be strategic
Getting out of debt by paying only the monthly minimum payment is almost impossible. While monthly minimums can be huge burdens financially, they also barely make a dent in the total amount you likely owe.
However, don’t just arbitrarily start paying above the minimum on all your debts. The best plan is to meet the monthly minimums and then allocate additional funds to a specific debt to get rid of it entirely. By strategically choosing a debt to focus on, you can get out of debt much faster.
As for which to focus on first, two basic schools of thought exist.
The first, the “debt snowball,” suggests you focus on the debt with the smallest total balance first. You’ll be able to pay off that debt as quickly as possible, giving you a much-needed victory and freeing up funds to focus on the next-smallest debt.
The second, the “debt avalanche,” suggests you focus on the debt with the highest interest rate first. This strategy will likely save the most money in the end, but it can take a long time to eliminate that first debt, which can be discouraging.
Both strategies have merit; it’s up to you to choose which way to go. The more important thing is simply to have a strategy in the first place, one that provides a roadmap to financial freedom.
5. Spend less with a budget
Living on a strict budget is essential to getting out of debt. Budgets don’t just tell you how much you spend each month on certain things; they also provide a high-level view of your finances that can help guide the future.
Making a budget isn’t as hard as you think; simply tally your income and subtract expenses. Then, allocate a portion of the remainder to paying down debts.
Sticking to a budget is sure to be difficult, especially for someone who has never practiced financial discipline before.
To make budgeting a little easier, try to fixate less on the things you’re giving up now and more on the lifestyle you’re building for the future. Living debt-free feels better than any momentary lapse in financial judgment ever could.
6. Earn more on the side
In tandem with spending less, earning more is amazing way to pay down debt faster. It can also often be a whole lot easier.
“Side hustles” and second jobs are now commonplace for people looking for better ways to finance their lifestyles. A few hours here, a few shifts there; all of a sudden, you have extra cash to pay down debts faster without seriously cutting back on spending.
Sometimes, just asking for a promotion or a raise can do the trick as well. In one fell swoop, you can earn more money, advance your career, and get out of debt faster, all without working an extra minute during the week.
7. Negotiate credit card interest rates
Many people don’t realize that they may be able to lower their credit card interest rates with a simple five-minute phone call.
Just call and ask; with a little persistence (and a history of responsible payment), you might end up with an interest rate cut in half.
It doesn’t always happen that way, but it doesn’t hurt to ask.
8. Leverage windfalls whenever possible
The best example of an unexpected windfall is a tax refund. Even if you expect a refund, don’t account for it as part of your budget. That way, it will seem like “extra money” when it does arrive.
It can be very tempting to spend this type of windfall frivolously. In the end, however, this money will do more good sitting in a savings account, or applied to an outstanding debt.
9. Resist temptation and avoid triggers
Even the most financially disciplined falter sometimes. You may see something at a store when “just browsing” and whip out a credit cards. Maybe you call a friend to check in and end up agreeing to a lavish night out.
These kinds of missteps are natural, but they’re also avoidable. Luxury stores and persuasive friends are fun, but they can also be triggers for spending. Staying away from them (or at least setting clear boundaries) is the best way to avoid frivolous spending.
10. Consider debt consolidation
Sometimes, even if you do everything right, it can feel like you’re making little to no progress toward paying off what you owe. In these situations, options still exist. One of the most common is debt consolidation.
With debt consolidation, you combine various debts into one, often at a lower interest rate. The result can be lower short-term and long-term costs as well as a faster, clearer path toward becoming debt-free.
Consolidation isn’t right for everyone, and it’s not an easy, overnight solution to your debts. For people who feel like they’re out of options, though, consolidation can make things a whole lot easier.
