One of the most rewarding and freeing things we ever did was pay off our debt. After paying off $107K in 33 months we said goodbye to it once and for all. I want that for you. Hopefully you don’t have that much debt, but for whatever debt you have, let’s pay it off fast. Let’s get intense and eliminate your debt so here is how to pay off your debt fast.
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How To Pay Off Your Debt Fast
If you want to pay off debt fast, then first know that it is very possible and that you shouldn’t underestimate yourself. The second thing to know is that you have to hit it from all angles to pay it off quickly.
It will be worth it though, and the good news is that once you are done you get to the fun part. Then you can enjoy investing and building wealth to craft your life and live on your terms.
Yeah, you might sacrifice in the short-term, but it is a long-term gain and I doubt you will remember much of what you gave up anyways.
1. Get Passionate/Motivated
The first thing you need to do to pay off debt fast is to get passionate and motivated. This will fuel your debt payoff and keep you moving forward through any rough times.
For me, this was the difference in why I was successful at paying off debt compared to when I previously failed.
I consider this the X factor that your debt payoff is missing. Use this to supercharge your debt payoff. In turn, all the following steps will be easier to do when you have an intense urge to succeed.
If you are frustrated, embarrassed or mad, turn those emotions into something positive and take action now.
2. Know Your Numbers
The next thing is to know your numbers inside and out. This means adding up all your debt excluding primary mortgage) and seeing how much you owe overall.
Most people know the rough amount they are in debt. I want you to know the exact amount. Take the power back and confront your number head on.
In addition to knowing the exact amount of debt overall, write down the interest rates and minimum payments on each loan. We’ll get to this later, but it is important to know this information.
As you make each payment, track your progress with a debt tracker. It will automatically add up your debt and show you how much you have paid off each month. For extra motivation, you will see how much is going towards interest which is money that you are losing every month. The good news is that each month your pay off debt you will pay less and less than before.
3. Make A Budget
This part goes without saying, but a budget is the best way to know where your money is going. Since you want to pay it off fast you need to have a strict budget and track all your expenses.
Tracking is the critical part to being successful with your budget. We like to use Mint to track our expenses but there are many others such as YNAB or Every Dollar to start with. You can both make your budget and track it in these apps I just linked to. If you prefer to do it by hand use this budget worksheet.
Here are some quick tips to get you started and to be successful with your budget.
- Know you will make mistakes and that is OK
- Don’t give up!
- Track your expenses
- Know you can adjust your budget during the month
- Set goals and know that you will be rewarded by being successful
Just knowing and accepting those 5 things will free you up to start working on a budget.
4. Cut Spending Hardcore
So, this is where you want to decide how fast you want to pay your debt off. If you have $10,000 to pay off that is different than $100,000. Both might seem daunting, but we need to craft a plan that will work for you in the short and long term.
It is easier to be more intense for a shorter period of time so that might be the best way to pay off that $10,000. It can be a sprint in that case where you cut everything to a bare bones budget.
If you have $100,000, it will be more of a marathon, but it actually isn’t so bad if you have the income to support it. It will still take you a few years instead of a few months.
For a comprehensive list on ways to cut your budget check out this list of 23 ways to save hundreds in your budget.
Here are some things to start thinking about in the meantime.
- No Eating out or significantly reducing it
- Cut Cable
- Cut phone costs in half
- Drive less
- No vacations
- Move to save money on rent
- Use free resources such as the library
5. Increase Income
On the flip side of cutting spending you need to raise your income. Sometimes you can only cut so much so you need to look at the income side of things.
It just depends on your specific situation.
There are a few different approaches to raising one’s income and then we will talk about what is best to make money quick.
- Get a raise or switch jobs for higher pay
- Work more hours at your main job
- Sell stuff
- Start a side hustle using your skills
- Start a side business that can make money down the road
So, not all of these are conducive to paying off debt quickly, but it depends on your timeframe.
For the best results to pay off debt now you will want to sell stuff. That will be the quickest way to more money today. Otherwise, look to pick up extra hours if you can. Those are good short-term options but think about your long-term plan as well.
Side hustles make a ton of sense but can take a while to develop. They are worth it, but you should know this before starting a side hustle.
Regardless of what you choose, increasing your income is a critical step towards paying off debt.
6. ALL Extra Money Goes Towards Debt
So, now that we have both cut our spending and increased our income the way to make a difference is to take that extra money and pay off debt with it.
This is such a critical step.
So often, we do the first 2 things but don’t quite follow through with the debt payoff part. We maybe get cold feet or decide we can splurge on something, but you need to make the step of making the payment.
To avoid hesitation, you need a plan for how you are going to pay off your debt.
Use the debt snowball plan, you will have the best luck at sticking to it and we need results first. You can always optimize it later, but now is not the time to try to be perfect at the expense of not being successful.
With the debt snowball you pay off the debt with the lowest balance first. Once that is gone, go to the next one and pay that off. Ignore interest rates for now, we need results and think about how fun it will be to have one less payment!
We want action and the debt snowball will deliver results the quickest.
7. Emergency Fund
The other aspect of this is that you must avoid going into further debt. For this, you need an emergency fund if you don’t have one.
If you are starting with nothing, save up $1,000 and then start paying off debt regardless of your situation. If you’ve never had a $1,000 then it will be too much of a distraction to your debt payoff to save up more.
For those of you who have more than $1,000 available, then consider the following. If you have kids or are at risk of losing a job or income, then keeping more in the bank is perfectly understandable. That is up to you but as you will see in the next section, that extra cash will be helpful.
The emergency fund is to be kept in another account that is accessible. This can be an online savings account, but it needs to be separate so that you don’t spend it.
8. Use Any Extra Money Over $1,000 To Pay Off Debt
To pay off debt fast you need to use all the resources you have. This includes any extra money that you have sitting around.
So, take all your extra money and pay that towards debt right now under the debt snowball plan.
You need to keep your emergency fund around but anything beyond that can go.
You also need to have some float in your checking account, so know I am not saying take it down to $0. We keep ours at $1,000. This is not an emergency fund. That is separate. Maybe $100 is a good starting point if you have nothing in the bank but you should always have a baseline that you know you can’t go below but are still provided a cushion while money is going in and out of your account. This will avoid overdraft fees which will slow down your debt payoff.
Also, don’t withdraw money from your 401K or any other retirement plans. That needs to stay in there and keep working to earn money for down the road when you really need it.
9. Do No Spend Months
During your fast debt payoff there will need to be times where you go hardcore.
Consider doing a no spend month. This means don’t buy anything that is extra beyond housing, utilities, transportation, groceries, insurance or medication. Only pay for the essentials.
It means that you eliminate the following for a month.
- Going out to eat (no restaurants)
- Entertainment of any kind that costs money
- No coffee or snacks in the morning/throughout the day
- Clothing, shoes, purses/bags
- Personal products beyond the minimum (deodorant is OK)
I know this sounds a bit hardcore, but it is a good way to make a dent in your debt. It isn’t forever. It is just one month and afterwards you will have a new appreciation for what you do buy or maybe you’ll realize that you didn’t need certain things anyways.
10. Set Goals
Whether you have a lot of debt or a little, you need to set goals if you want to pay it off quickly.
Set goals per month and then break them down into weekly and even daily goals to make sure you are on track.
Use a debt thermometer to track your progress and set goals with the progress you make with it.
Just know that every decision really does add up so if you are feeling frustrated know that every choice plays a role in your success.
11. Don’t Quit
Debt payoff is like trying to lose weight. It can be tough, and it seems like a revolving door of setbacks.
You will make mistakes and have roadblocks. With that, do not give up.
It isn’t just about paying off debt. That is the short-term goal, but you are really deciding on a better future where you are in control of your finances.
That is so amazing, and you truly deserve that. If there is anything you deserve, it is that. A future that is filled with freedom to give how you want, work how you want and to simply do what you want.
By making the choice to pay off your debt fast you are making a commitment to a better future so don’t quit. You deserve the benefits.