Do you have outstanding debt hanging over your head?
Whether it’s student loans, credit cards debt, car payments or any other type of debt, it’s costing you money! And if thinking about debt keeps you up at night, it may be causing you undue stress as well.
But, not to worry — once you make paying off debt a priority, it can often be easier than you think. The key is persistence — and knowing exactly how to tackle what seems like an insurmountable mountain.
So if you’re ready to tackle your debts, here’s how to do it as quickly as possible!
How to pay off debt quickly
1. List debts by interest rate
Sometimes we may just want to stash those bills away and never look at them — but the one big key to paying off your debt is knowing where you are. Take out all of your bills and list your debts from smallest to largest.
Then, list them in order from highest interest rate to smallest interest rate. Since the one with the highest interest rate is costing you the most money, that’s the one you want to pay off first.
Once you have the totals listed out, and the interest rate on each, you’ll know exactly what you’re up against before you start to tackle the highest interest rate debt.
2. Have an emergency savings fund
Let’s face it — emergencies are bound to happen. And although no one expects them, everyone should always prepare for them. But stashing away emergency savings doesn’t have to derail your debt payoff plan.
Before starting to really pay off your debts, build up a small emergency savings fund of at least $1,000 for any unexpected expenses or bills that could pop up (think car repair, medical bills, etc.). This is your â€œrainy dayâ€ fund, or money you tap into when something unexpected happens. If you do have an emergency and need to use some money from your fund, build it up again before paying off more debt. (But, be sure to still pay minimum payments on your credit cards and other debts.)
3. Always make minimum monthly payments
You’ll want to be sure to always pay your minimum payments on time for every debt you have — in order to avoid paying higher interest and late fees. So if you’re trying to pay off the highest interest rate card first, put more money toward that card each month, while continuing to make the minimum payments on all other debts. Then move to the next highest interest rate card and so on.
4. Create a budget and remove any extraneous items
If you don’t already have a budget, putting one together is a great idea. The idea of budgeting might conjure up feelings of lack or scarcity, but in reality, budgeting is just a simple way of you telling your money where you want it to go.
A good place to start is to take a look at your last month’s expenses from bank or credit card statements. To organize your expenses, you could use a paper budget or an Excel spreadsheet. You could also use an app like Mint to budget your expenses. You’ll want to create categories for each expense in order to set a limit for that category, and also list your income. Be sure your budget never exceeds your income — if it does, there might be some items you’ll need to cut.
If you’re finding budgeting on paper or computer doesn’t work for you, you might consider using the envelope method — an old fashioned way of managing money. To this day, many people still use the envelope method to manage their money and keep their spending under control. Check out how to use the envelope method here.
5. Gain momentum by laddering your debts
Once you’ve listed out all of your debts from highest interest rate to lowest interest rate, start paying as much as you can each month toward the card with the highest interest rate. Then once that debt is paid off, apply what you were paying toward that debt to the card with the second highest interest rate and so on. This will save you the most money over time. And once the debts start to disappear from your list, you’ll be able to gain more momentum and stick to your plan.
You’ll be able to finally see the light at the end of the tunnel once you’ve paid off the first debt, and then you’ll feel accomplished and encouraged to take on the next one!
6. Downsize temporarily
A season of paying off debt isn’t forever — it’s a little bit of delayed gratification now so you can enjoy a debt-free life later!
Take a look at your expenses from last month. Is there anything you really don’t need? Did you go out to eat too much? Do you need to rein in entertainment spending? Pay special attention to monthly regular monthly subscription services that can add up big over time. Then, apply these savings to your debt.
7. Sell any unnecessary items
Take a look around your house. Is there anything taking up space that you really don’t need? Maybe there are some larger items taking up space such as unnecessary furniture that could be sold to pay off your debts and decrease your financial burden. You could host a garage sale, sell items on eBay, or sell items on online yard sale Facebook groups and other sites.
8. Transfer your balances
If you’re paying high interest rates, transferring your balances can be a great way to save while you pay down the debt. Check out the best balance transfer and 0% interest credit cards here. But, be sure to always pay your minimum payments, and be sure you can pay off your balance before the introductory interest rate offer expires — otherwise you could be paying hefty interest charges and fees.
If you’re finding you’re having trouble paying your balances — and even the minimum payments — call the Consumer Credit Counseling Service. They provide free credit counseling and a debt management service for a 3% to 5% monthly fee not to exceed $50 (different for all states). Go to NFCC.org to find your local CCCS office.
9. Increase your income
If you’ve found you’ve done all your can to save and cut expenses, the next step might be to increase your income.
Are you ready for a new job? You might find that searching for a better paying job is the way to go to increase your income — for the same amount of hours put in. This should be your #1 step!
If you really like your current job or you’ve found you’ve maxed out your earning capacity in your field, why not get a second job? It doesn’t have to be forever — just for a short period of time until you’re able to pay off your debts in full.
10. Reward yourself when you experience a victory
This process of paying off debt doesn’t have to be a chore — make it fun for yourself! It can be more like a game if you reward yourself when you hit each milestone along the way.
Every time you pay off a debt, do something to celebrate! Go out for ice cream, coffee, go to the movies, get your nails done (ladies) — anything that doesn’t eat into your budget too much. This will help to encourage you to keep moving forward on the progress you’ve made.