Pay Off Debt Faster and Smarter in 9 Easy Steps

You need effective debt repayment plans and the right strategy to get out of debt. Initially, you will feel it is an overwhelming task, but with the right strategies, you can pay off your debt faster and smarter and achieve your financial goal. It needs consistent effort, focus, motivation, and debt management strategies to pay off debt quickly. It is the best way to pay down credit card debt.

There can be different types of debts, like credit card debt, student loans, loans for pensioners, or a mortgage. People hire debt management services to get out of debt. In this article, we learn about the quickest way to get out of debt step by step. We will learn how to use debt snowball and debt avalanche methods in debt management.

pay off debt faster

1. Have a Clear Insight into Your Net Debt

Before creating a debt repayment plan and tackling it effectively, you should have a clear picture of your debt. Prepare a list of debt in a spreadsheet including total balance, creditor’s name, monthly minimum payment, and interest rate. It will provide you with a clear idea about your total net debt, and based on that, you can prepare your debt resolution program.

Now you have a list of debts with detailed information. You can categorize your debt into two categories. “Good Debt” and “Bad Debt.” You can categorize low-interest rate debts, such as student loans and mortgages as good debt and high-interest rate debts, like credit card debt and personal loans, as bad debt.

Now you are good to go ahead and prepare a debt management plan after dividing debts into good and bad categories. You need to prioritize paying bad debts (High interest rate) first.

2. Craft an Achievable Budget Strategy to Pay Off Debt

The next step is to Craft a Feasible Budget Framework to get out of debt. A budget helps you monitor your income and expenses while designating a specific amount each month to tackle your debts. The budget includes total net income, expenditure, and savings to achieve financial goals.

Let us assume your total monthly net income is $10000. Here we will discuss only expenditure to find the best way to pay off debt.

  • Monitor Your Expenditure: Monitor your monthly expenses to identify where you are spending. Your main expenses include
    • Essential Spending: Example: Rent or mortgage payments, Property taxes, Utilities, Groceries, and Transportation costs.
    • Nonessential Spending: Example: Dining out, Entertainment, Travel, and vacation, purchasing gadgets, and Subscriptions and Memberships.
    • Savings: Examples are emergency Funds, retirement savings, down payment savings, and investments.
  • Calculate Unnecessary Expenditure: Prepare a list of unnecessary payments and calculate the total. Example:
    • Dining out: $800
    • Entertainment: $400
    • Travel and vacation: $1,200
    • Purchasing gadgets: $1,500
    • Subscriptions and Memberships: $350
    • Total Unnecessary Expenses: $4,250
  • Reduce/Eliminate Unnecessary Expenses: If your total net income is $10,000 then your nonessential expense should be $3000 as per the 50/30/20 rule but your actual number is $4,250. You need to keep it below or equivalent to $3000 by reducing or eliminating your want expenses as below.
  • Example of Unnecessary spending after Elimination/Reduce:
    • Dining out: $500 –Reduced
    • Entertainment: $300 – Reduced
    • Travel and vacation: $1,200-Eliminated
    • Purchasing gadgets: $1,200 – Reduced
    • Subscriptions and Memberships: $350
    • Total Unnecessary Expenses After Elimination/Reduce: $2,350 which is less than the $3000 limit.
    • Now you are saving $3000 – $2350 = $650
  • Redirect Savings to Pay Off Debt: You can redirect your savings (i.e. $650) to pay off debt.
  • Consider Debt Payment as Essential Expenditure: You can consider debt payment as your monthly bill which you must need to pay. Stay motivated, committed, and consistent to pay off loans and debts ASAP to enjoy an early debt-free life.

3. Use the Debt Snowball or Debt Avalanche Method for Debt Solutions

Now you have full details about your total net debt and savings for the debt repayment plan. You can consider anyone from Debt Snowball and Debt Avalanche methods to clear debt. Let us understand how these methods can help you in debt reduction to live debt free life. Let us understand how they work.

Example: Let us assume you have below-given debts.

  • Student Loan (Good Debt): Amount: $4,000, Interest Rate: 5.5%.
  • Mortgage Debt (Good Debt): Amount: $200,000, Interest Rate: 6%.
  • Credit Card Debt (Bad Debt): Amount: $1,000, Interest Rate: 22%.
  • Personal Loans (Bad Debt): Amount: $10,000, Interest Rate: 12%.

Now the question is which to pay down first? You can use anyone from below given methods.

  • Debt Snowball: This method is useful to pay off your smallest debt first. You can pay off credit card debt which is the smallest. Once it is paid fully, you can start paying off student loans, and so on.
    • Advantages
    • Psychological Boost: The smallest debt will be paid quickly which will encourage you in your debt repayment journey.
    • Building Momentum: It will create a snowball effect once you fully pay the smallest debt. It will encourage you to save additional funds to tackle large debts.
    • Simplified Focus: You can focus on paying one debt at a time.
    • Quick Wins: It will provide you quick win by paying the smallest debt first.
  • Debt Avalanche: You can use this method to pay the highest interest rate debt first. In our example, the credit card debt interest rate is 22% which is the highest. You can pay it first and once it is paid you can start paying personal loans, and so on.
    • Advantages
    • Saving on Interests: You are paying the highest interest rate debt first so you are saving your interest.
    • Fast Repayment: You can pay your debt fast because you are paying the highest interest rate debt first which will reduce your overall debt balance.
    • Lower Stress Over Time: Your overall debt balance will be lower over time which will help you to lower your stress.

4. Increase Your Income to Pay Off Debt Fast

Did you ever think how much of my salary should I save for debt payment? It will be the best way to get out of credit card debt or any other debt if you can increase your income anyway. If you can increase your income, obviously you will save more. You can use that extra savings to pay off credit card debt or any other debt you owe. Let us discuss how you can increase your income to pay off debt fast.

  • Ask For a Salary Increase or Promotion
    • You can discuss about your performance and achievements with your top management and ask for hike in salary or promotion. Also, you can switch to another company if get better offer.
  • Side Gigs/Hustle
    • Find opportunity to get freelancing work or side business in your spare time. You can find freelancing work based on your skill on freelancing platforms like Upwork or Fiverr. Also, you can look for part-time job opportunity.
  • Invest In Skill Enhancement for Promotion
    • Enrol for skill enhancement courses to get better opportunities and better-paying jobs.
  • Teaching or Tutoring
    • Start teaching students based on skill. You can launch online courses as well.
  • Hobby Monetization
    • If you have any hobby like photography, videography, or any other hobby. You can earn by selling your creations. Also, you can start blogging or vlogging if you have deep knowledge in any subject.

These are some of the ways for many to increase income.

Also, you can read 25 Best Ways to Save Money Guide to increase your savings for outstanding debt payments.

5. Best Debt Consolidation Plan and Refinance

Refinance and debt consolidation works differently. You can lower your interest rate using both which allows you to pay off your debt faster. A lower interest rate will reduce your total balance to pay over time. Let us discuss both and how they work.

  • Debt Consolidation: In this process, all your debts will be combined into one loan with a lower interest rate. You can take a single debt consolidation loan to pay off all your debts.
  • Example: You have 2 debts to pay.
    • Personal Loan: $8,000 at 14% APR
    • Credit Card Debt: $7,000 at 23% APR

Total of your all debts is $15000. Now you can decide to consolidate your debt into single loan with lower interest rate.

  • You can take a debt consolidation loan for $15000.
  • The interest rate on a debt consolidation loan is $11%.

Here you can see that now your interest rate is decreased significantly from 14 and 13% to 11%. You need to pay less interest over the time. Also, from now onwards, you need to manage just single debt instead of two different.

  • Refinance: It is a process of replacing your existing debt with a new one but with better interest rates and terms. You take a new loan with a lower interest rate to pay the old debt which has a higher interest rate. Let us understand with an example.
  • Example:
  • You have a loan with an outstanding balance of $7,000.
  • The interest rate is 8%.
  • The payment term is 5 years.
  • Debt Refinancing: Now you decided to refinance your debt for lower interest rate.
  • You can take a loan of $7,000 from a new financial lender. You can pay it to an old loan and close it.
  • The payment term is 5 years.
  • The interest rate offered by the new financial lender is 5%.

You will save 3% interest by refinancing which will be a huge amount over time.

Note: Before debt consolidation or refinance, please compare the rate of interest, terms, and other financial conditions to make sure how much you will save over a longer period.

6. Payments Automation

Debt payments have a due date every month. There will be a bad effect on your credit score if you miss a due date. Also, financial lenders can take late fees for late debt repayments. To pay on or before the due date, You can set up automatic payment for your debts. It will ensure your payment consistency and prevent you to spend from debt repayment money.

You can ask your lender to facilitate auto payments for your debt or loan repayment. It is a one-time task and they will set it for you.

7. Stay Energized and Celebrate Achievements

It is a long journey to pay off your all debts and you need to stay energized. You need to set achievable, small milestones. You can celebrate each of them once you achieve them. It will help you to stay motivated and energized.

8. Refrain from Incurring New Debt

It is important to refrain from new debts while paying off existing ones unless and until it is necessary. Your focus should be on paying off or reducing existing debt first. Instead, you can consider other options like reducing your spending and Increasing your income. Also, you should build an emergency fund to spend on unexpected emergency expenses.

9. Prioritize Sustainable Financial Health

Becoming debt-free is just the start of your financial journey. Once pay off your debts, keep up the good financial habits:

  • Build an Emergency Fund: Set aside funds for unexpected spending to avoid going into debt again.
  • Invest for the Future: Start investing in different financial tools like stock, gold, and, real estate to grow your wealth over time and secure your financial future.
  • Live Within Your Means: Avoid spending more than you are earning and make it your habit.

By following the above guide, you will stay out of debt and enjoy a long-lasting financial journey.

Conclusion

Track your spending diligently, steer clear of new debt, and explore opportunities to boost your income. Celebrate even small milestones to maintain your motivation and confidence. Debt-free living is a starting point—focus on cultivating strong financial habits, building an emergency fund, and investing for long-term goals.

Living within your means not only ensures financial stability but also paves the way for a brighter, more secure future.

FAQs

What is the quickest method to pay off debt?

You can use debt avalanche and debt snowball methods to pay off debt faster.

How can I pay off debt more effectively?

You should adopt smart financial habits like budgeting, debt consolidation, automating payments, and cutting unnecessary expenses to pay off debt more effectively.

Should I prioritize paying off debt or saving money?

If you have enough emergency funds (fulfill 3 to 6-month expenses) then you can prioritize paying off debt first.

Can I negotiate my debt for a reduced payoff?

Yes, You can negotiate with the lender for a reduced payoff.

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