Debt, unfortunately, is something we all experience at some point or another in our lives.
Some people can’t say no to taking on credit card debt and using it with no regard to the consequences like blowing their balance on a shopping trip or a holiday. Others find themselves in a position where debt is a necessary evil, whether that’s obtaining a student loan, a car loan, medical bills or a mortgage.
When we come to pay off debt it seems impossible, especially if you’ve found yourself on the slippery slope of high interest credit cards or loans.
Credit cards and loans encourage you to live a life you can’t afford and expect you to pay the consequences when paying off debt later, it becomes a horrible struggle to pay off debt with the added injury of interest and sometimes late payment penalties.
That you are here reading this leads me to a safe assumption you currently have debt, or you have a friend or family member who’s in a mess with debt and you want to know how to pay off debt quickly.
Firstly, let me congratulate you for facing your demons.
You’re in the right place to get some advice and tips.
I encourage you to sign up to my mailing list to follow my journey from debt to financial freedom. If you use the box below I’ll also send you a copy of the Google Spreadsheet I use to keep a weekly budget. This weekly budget helped me pay off $5000 of debt in just 6 weeks!
So how do you pay off debt quickly?
There are a number of methods you can utilise in order to pay off debt fast. I created the ‘How To Pay Off Debt’ series of blog posts to explore each of these methods. Each has it’s pros and cons and should be chosen based on your personality type.
Only you know you best, or if you find yourself struggling to understand which might suit you best, perhaps you can sit down with a friend or family member who knows you well and whom you are prepared to share your circumstances with in order to get assistance on identifying which method might work best for you.
These methods are as follows and you can read more about each one by clicking on the link:
- The Debt Snowball
- The Debt Stack Method
- The Half Payment Method or
- My Counter-Intuitive Method to Pay Off a Credit Card
If you find that you give a concerted effort to one method then don’t give up. Try another method. When you find the right one you’ll feel enthused about paying off your debt and will be spirited along to work harder.
The main goal of a method to paying off your debt is to keep you focused and change your behaviour.
The upside to sharing your circumstances with a friend, and your intent to follow one of these methods, is that they can also keep you accountable that you are keeping to your goals. Setting goals is of paramount importance if you’re in a financial hole.
However, before you undertake one of these methods to pay off debt here are some simple steps that you must follow to give yourself the best possible chances of success.
Step 1: Stop creating new debt
You’re in this mess for a reason! You need to give yourself a reality check and realise that you absolutely need to put a stop to creating any new debt.
The fact that you are here reading this article is a sure sign you’re on the road to recovery. You’ve realised there is a problem and you’re trying to sort it out.
But that doesn’t mean you’ve committed yourself to stopping the debt.
You need to plug the holes in the ship, otherwise, you’re going down like the Titanic.
Now this is going to be easier. Consider this period is going to be a true test of your self-control but if you pass it your life is going to be so much better.
You need to resist all those marketing messages for that shiny new toy, those shoes you love, that haircut you think you need or that wonderful new credit card that the bank keeps telling you about.
Life doesn’t have to be extremely painful but you need to be ready to make changes.
Your best bet to stop the holes is to cut up your credit cards or put them in a place that’s not easy to access. When I say not easy, I mean in a place that’s a REAL pain in the ass to get to, like a frozen bucket of water in your freezer, or under a heavy slab of concrete in your garden. Perhaps even give it to a (highly) trusted friend or family member who’s a bit of a distance away.
If you’re tempted to get them out you are going to have some cool off time before you get your hands on them. If that happens, just give yourself a talking to whilst you work hard to get them and remind yourself WHY you’re trying to pay off debt.
Step 2: Itemise your debt
Most of the methods in the ‘How To Pay Off Debt’ series require you to make a list of your debts and order them in a particular way.
The debt stack method requires you to order by interest rate with the highest interest first, the debt snowball requires you order by amount with the smallest debt first.
Regardless of which method you approach, it’s good to get a clear insight into what debt you owe and detail:
- What the rate of interest is.
- How much that interest is costing you each period.
- What the minimum payment is.
- What the expected term of the debt is.
- Whether you can pay the debt off earlier.
- Whether making over-payments reduces the amounts or interest charged.
Step 3: Lower your interest rates
More often than not you can lower your interest rates on a debt.
For example, you could work with a bank to do a balance transfer from one card to another. You may need to apply for a new card to get the best offer but shop around, even call your existing bank and play them off against a competitor.
If you have a high-interest credit card charging you 19% or 24%, with a large balance, you are going to save a small fortune by arranging a balance transfer at a much lower rate or 0% either for the life of the balance or even just for a period, such as 12 months.
Be aware of balance transfer fees and account fees, however. I recall some banks in the UK would charge 3% of the balance when making a balance transfer, sometimes that doesn’t stack up in your favour!
Do your math to calculate what you will save over the course of the balance and work your calculations on your ability to pay it off.
Step 4: Create a strategic debt plan
This does not have to be rocket science and it can be as simple as setting up a family budget.
I cannot impress upon you enough the importance of keeping a family budget to keep track of your finances. If you don’t know how to do that, or you need some help in the previous link you can obtain a copy of the Google Spreadsheet I use to keep my family budget if you sign up to my mailing list.
Viewing and keeping track of your income and expenditure will open your eyes to where your money is going and what you need to change in your life to move forward. You’re not going to make efficient progress without it.
The objective is to get your budget to where you have more money coming in each period, ideally weekly, than you have going out. You will then use any surplus to beat the crap out of your debt.
Step 5: Create a debt repayment schedule
Your budget will help you with this. In fact, it’s one of the biggest benefits to a budget.
You’ll be able to set up when your payments are due and you can see if you will have the money to make the payment, and if not what the shortfall is, which helps you focus on finding the extra money you will need.
As you update your budget each week you’ll be able to see the positive or negative effect of your actions on future payments. If you go a bit overboard on a shopping trip you will see that you’re not likely to have the money to pay your credit card in 3 weeks time.
This gives you ample warning to make savings or find ways to earn extra income to sort that situation out, or more likely helps you avoid getting yourself into that decision to go shopping in the first place!
Your budget sheet should become your new best friend.
In your budget, you should add in your minimum payments for each debt and I strongly recommend setting these up as automatic payments from an account you don’t normally touch so you can effectively set and forget each month.
Step 6: Place milestones and set yourself small rewards
Every now and then you have to cut yourself some slack.
I learnt first hand that living an incredibly frugal life can get a little intolerable. No entertainment, budget meals and making savings across the board can lead to a bit of dull life.
In fact, it can get plain depressing.
Whilst it’s important to your main goals that you find things to do to keep yourself happy and healthy without it costing you money you need to factor in a little reward. For me, it was a trip to the movies with my partner, it was cheap and cheerful. You need to pick something simple that’s not going to blow your budget. Don’t buy a $300 handbag, that’s just dumb, you want small rewards that don’t create a big negative impact on the hard work you’ve just put in.
Step 7: Stay committed
Your resolve is going to be tested on a daily basis.
But, if you want to pay off debt fast you have to stay committed!
When I created a budget I found I was a sucker for spending money on cafe made coffee in the morning and lunch from the local bakery. It wasn’t a huge extravagance at around $10 a day, but the budget showed me $60 a week and $300 a month and I soon realised that $300 a month of my credit card was going to get me to happy more quickly.
But the pull to buy a coffee every morning was all too memorable. There were too many days when I forgot to make lunch the night before, or in the morning.
I punished myself and went without to stay committed and teach myself a lesson. I’m glad to say the resolve worked. Push yourself through a few days of hunger and you soon learn to prepare your lunches!
You need to be tough with yourself and only reward yourself when you hit your milestones.
The big thing about staying committed and hitting your goal is that you’ll change your habits, you’ll change as a person. Then, the next milestone will become so much easier. Trust me, I’ve been there. You can do this!
Follow my journey from debt to financial freedom
If you want to follow my journey as I get out of massive debt and head toward financial freedom please join my mailing list and I’ll keep you updated when I post some new content. I give monthly income reports as I start to earn a side income and set up passive income streams. I also regularly post tips and advice on how you can pay off debt as well as ways to save money and reduce your spending through frugal living.
I’d love to have you along for the journey.
The mailing list subscription box is on the right-hand side at the top.
In the meantime, good luck with your debt!