It’s an unfortunate truth that more people are buried under debt than you might expect. But it doesn’t have to stay that way.
The good news is that there are many different tactics you can use to eliminate debt fast. With so many options for paying off debt, why not choose the best one for your situation? That’s the key to eliminating debt fast.
Choose a method that works for you and your particular situation, and don’t be afraid to apply multiple methods at once if needed. With enough time and effort, you can eliminate your debt!
Many people experience trouble when trying to pay off their debts. It’s not always easy to see how you can get rid of debt fast.
So, how do you eliminate your debts? Here are some proven strategies.
Steps to Eliminating Debt Fast
- Create a Budget
- Consolidate Your Debts
- Trim Expenses
- Consider a Windfall
- Pay More Than the Minimum Payment Each Month
- Look at your tax withholdings.
- Don’t touch the money in your savings account before tackling debt.
- Start an envelope budgeting system.
- Negotiate your payment plan with your creditors
- Give yourself a raise.
- Get a side hustle to increase your income.
- Pay off your debt using-the snowball method.
- Prepare for life changes that could affect your ability to pay down debt.
- Stay motivated by treating yourself after every small accomplishment.
- Know when to call it quits
- Make sure to automate your finances, so they run more smoothly
- Final thought
Create a Budget
If you have never created a budget before, now is the time to try it. Your budget will give you an overview of your financial situation and help you to determine how much money you have available for paying off your debts.
It can be difficult to know how to start if this is your first time creating a budget, but many helpful online tutorials walk you through each step. You can find examples from reputable websites such as Mint or Personal Capital.
Pro Tips: First, find out how much money you spend each month. Write all of this down so that you can see it in front of you. You should know how much you spend on things like your mortgage or rent, food, utilities, entertainment, etc.
Next, subtract what you spend from your income. The difference is the amount of disposable income that you have for the month. Once you have done this, divide your monthly amount by 30 days to get an average daily balance.
Finally, list your living expenses based on what percentage of each day’s average balance they amount to. Your living expenses are any significant costs associated with where you live–money spent on mortgage or rent payments are living expenses because they represent a regular payment that you must make to remain in your home.
Other living expenses include utilities, groceries and other essentials, and entertainment costs such as restaurant bills, movie tickets, etc.
Here is the summary for you how to create the Budget
1. List all the expenses you have each month
2. Write down how much money you spend
3. Subtract what you spend from your income
4. Divide your monthly amount by 30 days
5. Divide the number of months you have left before retirement by 12
6. Figure out how much money per day you need to live on
7. Calculate the percentage of how much each living expense is for each day’s average expenditure
8. List your living expenses in order on what percentage of each day’s average balance they amount to
9. Summarize everything into points 1-9
Consolidate Your Debts
It might be a good idea to consolidate all of your debt into a single loan if possible. This allows you to make one manageable monthly payment instead of several payments to different companies each month.
For this option to work well for you, take the time to research consolidation loans for your specific situation.
For example, some lenders offer a 0% introductory period as long as you pay on time during the first several months. Use a consolidation loan with a very low-interest rate if possible to save money on interest and shorten the length of your repayment term. Make sure that the consolidation loan doesn’t have any hidden fees associated with it.
Look for loans that are secured by your home, but avoid those with prepayment penalties. This means you can pay more than what’s required of you each month if you feel the need to do so without incurring additional fees on top of your actual interest rate.
Pro Tip: Make sure you notify all three credit bureaus of the change in account numbers for your new consolidated loan, plus provide them with a forwarding address to send your monthly payment statement to.
Read More: Smart moves to lower your Credit Utilization Ratio
It might seem obvious, but trimming expenses is another way to eliminate debt fast. Look at discretionary expenses–those not considered necessary living expenses–and find ways to reduce them.
You might find that you can cut your cable subscription, use public transportation more often, or move to a less expensive apartment. Or look at grocery spending and try to buy items when they are on sale instead of paying full price.
A great way to trim expenses is to eat out less often. Cooking dinner at home can be much cheaper than going out for a meal or ordering food from a restaurant delivery service. And this tip works well even if you don’t have room in your budget for any other changes. Another easy alternative is to pack your lunch each day rather than buying something from a fast-food restaurant.
Your goal is to spend less money each month, which will make it easier for you to pay off your debts faster. Reducing the amount of time you spend paying off debt can help you accumulate wealth more quickly in the future.
Consider a Windfall
If all else fails, consider using a windfall–an unexpected source of funds–to eliminate your debt burden as much as possible at once. If a relative gives or loans you a large sum of money, then use that money to pay down your highest interest rate debts first.
Using any windfalls wisely requires planning and budgeting, so that’s why I suggest putting the money into high yield savings account until you have enough saved up to pay down your debt(s) without accruing any new debt.
Pay More Than the Minimum Payment Each Month
Finally, an easy way to eliminate your debts quickly is to focus on paying more than you owe each month instead of spending time trying to figure out complicated strategies.
If you have an extra $300 a month after making all your essential payments, make sure that you send it towards whatever balance is currently outstanding on the credit card with the highest interest rate.
Whatever system or approach you find works best for you, make sure that you are not tempted to take on additional debt while paying off existing debts because this might only lengthen the amount of time needed for getting rid of once and for all. Remember to be patient and stick with your debt elimination plan.
Pay off the most expensive debt first.
It’s usually the lowest balance debt that’s most expensive. The best way to eliminate debt is first to pay off the most expensive debt, which you can determine by calculating the average interest rate.
To calculate the average interest rate, add up the balance of each debt and then divide by the number of debts.
For example, suppose you owe $5000 at an 11% annual percentage rate (APR) with a $2000 balance and another $8000 at a 15% APR with a $4000 balance. In that case, your average interest rate is 13%.
It’s important to choose which balances to include when calculating your average interest rate because it will determine how much each remaining debt must be reduced to become more affordable.
Look at your tax withholdings.
If you’re in debt, your withholdings are likely more than you need. Adjusting your withholding on Form W-4 is one of the easiest ways to increase your take-home pay so you can get started eliminating debt faster.
Don’t touch the money in your savings account before tackling debt.
It’s tempting to raid your savings when you’re focused on paying off debt, but it can derail your progress and make it harder to resist spending later on. Instead, use any extra cash from a side hustle or a promotion at work for additional payments toward debt until you’ve eliminated all of it.
Start an envelope budgeting system.
As soon as you get paid, the same amount into three envelopes labeled Spending, Saving, and Debt Payoff. Keeping these categories separate helps many people avoid overspending because they only have access to the money in their envelope once they pay for fixed expenses like rent and utilities.
Negotiate your payment plan with your creditors
Suppose you’re struggling to pay off your high-interest rate cards. In that case, it may be time to work with your creditors and negotiate a more affordable payment plan.
Give yourself a raise.
Many people don’t even consider their withholdings as income, which is an easy way to increase your paycheck so you have more money to put toward debt. To do this, fill out a new Form W-4 with your workplace to adjust the withheld amount.
Get a side hustle to increase your income.
If you have some free time, get a side hustle to increase your income. You’ll be surprised how much of an impact just an extra $100 can make when it comes to reducing debt. Some jobs with flexible hours and great pay include being a virtual assistant, starting an Etsy shop, or doing freelance work.
Pay off your debt using the snowball method.
The snowball method is one of the easiest ways to become motivated to pay off debt because all you have to do is focus on making it through each month with progress rather than feeling overwhelmed by what’s left over when you reach your goal amount.
Set a realistic end date for paying off all of your credit card balances to use the snowball method. Then list them in order from smallest balance to largest balance, except put the smallest account on top of your list instead of at the bottom where most people place it. Next, make minimum payments on all but one account while throwing all of your extra funds toward the smallest balance debt, which will quickly reduce it. As you pay off accounts with higher balances, increase your minimum payments on the next largest account until you’re only left with one remaining debt to be paid off in full.
Read More: 17 Tips For Getting out Of Debt Quickly and Efficiently
Prepare for life changes that could affect your ability to pay down debt.
Life is unpredictable, and things happen that force us into situations where it isn’t easy to make our monthly payments. Preparing for these moments ahead of time can help put you in a better position if they ever occur because you’ll know exactly how much wiggle room you have when making tough decisions like whether or not to attend an event or buy something fun but unnecessary.
Some of the most common types of life changes that can happen include getting married (and having to pay for both your lives instead of just one), deciding to have kids (which means either taking on more expenses or sacrificing something else, so you don’t go broke), and losing a job.
Stay motivated by treating yourself after every small accomplishment.
When you’re trying to pay off debt, it’s easy to get discouraged when looking at how much is left over. It’s important to push through moments like this because the only way you’ll be able to reach your ultimate goal is if you continue making progress no matter how slow it may feel at times. When you make it through a difficult month, don’t think of it as simply making it one more step closer to being debt-free. Give yourself something fun to look forward to by treating yourself with every small accomplishment you hit along the way.
Know when to call it quits
No matter how difficult it feels, try to remember that debt is a part of life, and there’s no such thing as getting out completely debt-free. At some point along the way, you’ll reach a breaking point and decide that enough is enough, and it’s time to call your quest for complete debt elimination quits.
When you hit this moment, please take a deep breath and do something nice for yourself to reward yourself for all your hard work because hitting your breaking point doesn’t mean you’ve failed…it means you’re human.
Make sure to automate your finances, so they run more smoothly
One of the most important steps anyone can take when dealing with their finances is to make sure our automated so nothing slips through the cracks and there’s no chance you’ll forget to pay a bill.
Some of the biggest time savers with automating your finances are that you can set up autopay on bills, so they automatically get deducted from your checking account each month instead of having to make each payment manually. You can also use automated savings plan to have a portion of your paycheck automatically deposited into a savings account without having to worry about transferring it from your checking account until it adds up enough for you to transfer the full amount at once.
If you’re struggling with debt, it’s important to know that no one is perfect, and life happens. Prepare for the unexpected ahead of time by automating your finances, so you don’t forget a bill or lose track of how much money is coming in and going out each month.
Don’t get discouraged when progress seems slow because there will always be tough times, but eventually, they’ll pass if you keep pushing forward. And never forget what brought on this journey:
You cared enough about yourself to make difficult decisions like cutting back on expenses or working extra hard to help free up more spending cash! Your efforts are paying off even though it may not feel like it right now; give yourself something fun after every small accomplishment along the way (whether it’s a little treat or a big vacation), and you’ll feel even more motivated to keep going.
- Shivani is a personal finance expert who covers topics from credit cards to travel rewards. She's featured in Prestige Magazine and passionate about helping readers make responsible financial decisions. Based in New Delhi, she travels as a digital nomad, sharing her knowledge worldwide.