How to Pay Off Debt Fast!
We live in a culture of debt. In fact, many people will tell you that taking on large amounts of debt is completely normal. Overall household debt in the U.S. had taken a downturn for a while, but in 2013 it began to grow again and now stands at more than $13.67 trillion. Mortgages alone are responsible for 71% of household debt. (That being said, in almost all cases, mortgage debt should be the last debt you pay off.) If you are like many Americans, you may be buried under a mountain of debt that can seem insurmountable…but there is hope!
So How Can You Pay Off Debt Fast?
The first step to paying off debt fast is to make a list of your debts. No matter how big or small, any money you owe someone else should be on this list.
There are many types of debt that you may have. Here are some of the most common:
- Credit card debt
- Car loan debt
- Student loan debt
- Medical debt
- Personal loan debt
- Mortgage debt
- Home equity debt.
Use the Debt Snowball Method (It works!)
The Debt Snowball Method: Once you’ve identified your debts, organize your list by type from smallest debt to largest debt. Don’t worry about interest rates. Only focus on the total remaining balance of each debt.
The reason the debt snowball method works so well is because you’re winning debt battles along your way to winning the debt war.
You should continue to pay the absolute minimum on all your debts, while focusing on eliminating the smallest debt as fast as possible. After the smallest debt is paid off, roll that payment amount over to the second smallest debt. Keep doing this until your debt is paid off.
Now let’s be clear… this method will ONLY work if you keep your spending habits in check.
So let’s dive into that some more…
Spend Less and Make More
In addition to the debt snowball, you absolutely must create a budget. You need to spend less and ideally make more. Easier said than done, right?
Here’s how to set yourself up for success and pay off your debt even faster.
The best method to help you spend less is to simply create a budget. Now there are all sorts of budgeting systems out there, so choose one and stick to it! It’s okay if you slip up a little at first, as long as you keep at it. EveryDollar is an excellent app that helps you create a monthly budget so you can achieve your money goals.
Budgeting will allow you to pay off debts faster. While helping you establish good buying and spending habits and lower stress. When creating your budget, you’ll want to eliminate all expenses that are not absolutely critical.
According to a recent slickdeals.net study, the average American spends $5,400 annually on impulse buys. Although impulse buying can be fun at times, you need to exercise restraint when budgeting. Only spend on the items you have accounted for in your budget.
Another way to spend less is by looking to reduce your monthly bills or recurring charges. This lifehack.org article lists some fantastic ways to cut your monthly expenses. Here are a few to get you started:
- Walk or bike to work.
- Purchase unbranded products.
- Bulk cook your meals.
- Change your phone deal.
- Switch cable providers or eliminate cable completely.
There are so many ways to reduce costs. By taking the time and making a concerted effort, you will not only spend less. But you will also set yourself up for a brighter and more promising financial future.
Another obvious way to pay off your debt fast is to make more money.
Be ambitious. Too many people stay stuck in a low-paying job and are complacent. Take stock of your prospects. There may be plenty of jobs out there in your industry that pay significantly more than you make right now. Devote a few hours each week to mastering your craft. In no time you’ll be able to make the leap to a higher-paying role. Whether it’s at your current job or a new one.
Meanwhile, in your current job, you may find extra cash in annual bonuses, raises and/or promotions. Additionally, side hustles can play a huge role in debt repayment.
With a thriving online economy, now is better than ever to start a side gig or online business. Even if you only have three or four hours a week, there are plenty of ways to make money from home. Putting the time in now is much better than paying all of that extra interest towards debt.
So How Long Will It Take to Pay Off Your Debt?
Here is a great tool to figure out how long it will take you to pay off your debt.
While this tool gives you the numbers, the real key to paying off your debt fast lies within you. Discipline and determination will go a long way in speeding up your debt payment process. Get started today with the tips we’ve laid out and you’ll be well on your way!
What Will My Life Look Like After I’m Debt Free?
Once you’ve paid off your debts (not including your mortgage if you have one), you should start saving quickly. You’ll need money to pay for any large future purchases like a new heating and cooling system, wedding costs or a car. These additional funds will help you from accruing future debts.
Max out contributions to your 401(k), IRA and any other retirement accounts you might have. Save for your kids or grandkids college funds. Give more to charity. And for crying out loud, take a vacation!
Once you’re free from the burden of debt, you’ll have more financial freedom. You can decide what your new life will look like. That might mean you can afford the home you’ve always wanted. Though, for some, it might mean the opposite. Now that you’ve tasted what it’s like to live frugally, you may look to downsize and move to a lower cost of living area. If you can afford to, you might even be able to go part-time at your job or take your freelance business to the next level. It’s entirely up to you.
Whatever your situation may be, becoming debt free will open so many doors. You’ll now be able to save more, give more, enjoy your life more and, yes, even spend more.
You’ll also be able to invest! Put your new-found cash to work for you by investing. You could earn additional income annually, save more for retirement, meet future financial goals and build wealth beyond what you could ever have imagined.
About Ben Broadwater
Ben Broadwater is the Director of Investment U. He has more than 15 years of content creation experience. He has worked and written for numerous companies in the financial publishing space, including Charles Street Research, The Oxford Club and now Investment U. When Ben isn’t busy running Investment U, you can usually find him with a pair of drumsticks or a guitar in his hand.