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We all have been there when we badly need some cash and are forced to borrow, hoping to pay it back as soon as possible. Sadly, sometimes we are unable to do that, and it cripples us financially, emotionally, and socially when we’ve no idea how to pay off debt quickly.
Well, the easiest way to pay debt quickly involves establishing what you owe, including it in your Budget, and starting to pay it using the debt snowball method. Additionally, avoid taking in more debt, pause investing, reduce spending, and improve your income.
These steps have proven to work for me, and I believe they can work for you. You’ll need to put in some work and possibly sacrifice a few things to pay your debt quickly. And once you do, you can start living a financially healthy life.
However, before I can take you through the debt repayment ideas, I should explain what debts are, the types that exist, and why you need to pay, among many other important information relating to debt. On that note, here’s what we shall talk about:
- What’s debt?
- What are the different types of debt?
- Why do you need to pay off your debt?
- How do you pay your debt quickly?
- How do you pay debt and save simultaneously?
- How do you pay off debt with a low income?
- How do you pay off debt with no money?
Let’s dive in!
What Is Debt?
According to the Cambridge Dictionary, Debt is simply money owed to another person or institution. It is money borrowed that you’ve to pay back – often with higher interest.
Different Types of Debt
Essentially, we’ve four major types of debt, also known as consumer debt, and they are as follows:
- Secured Debt—A secured debt is money borrowed against collateral, such as land or a car. Examples include logbook loans and title deed loans.
- Unsecured Debt – Unlike secured debt, unsecured debt is money borrowed without collateral. Instead, it depends on the borrower’s credit profile; examples include student loans, car financing loans, credit card debt, payday loans, and personal loans.
- Revolving Debt – Revolving Debt is an open credit line. These debts are typically recurring. You borrow, use the money, pay back the loan, and borrow again. Examples include credit card loans and HELOC (Home Equity Line of Credit).
- Non-Revolving Debt – This debt involves one lump sum, such as a mortgage or student loan.
Why Do You Need to Pay Off Your Debt?
According to mental calculator and historian Thomas Fuller, ‘Debt is the worst form of slavery.’ It just puts you in the controlling hands of your creditors and cripples you financially. The only way to break loose is to pay off your debt – which we’ll discuss later.
Generally, here are the reasons you should pay off your debt:
- Improved credit score – Though it’s never guaranteed, you can improve your credit score by paying your debt. It allows you to build your creditworthiness with creditors slowly, and they can start trusting you again with credit solutions.
- Save on expensive interests – The quicker you pay off your debt, the quicker you avoid paying the interest for a long time.
- Save enough for other money goals – Once you pay off your debt and are debt-free, pursuing different objectives such as saving, investing, buying a home, and others becomes easy.
- Improve financial security—Debt repayment enables you to save enough money to fully fund your emergency fund, retirement fund, or college fund, which improves your financial security.
- Mental well-being – Debt can cripple you mentally as it’s stressful to deal with it. However, once you get out of it, you free your mind, and that’s good for your mental well-being.
- Break free from creditors’ control—By paying off your debt, you free yourself from the clutches of your creditors. They no longer call the shots, which means you can do whatever you want with your money.
- Grow wealth – Debt repayment in the long run enables you to build and grow your wealth. Buying and keeping essential assets such as your land, home, and business becomes easy.
How Do You Pay Off Debt Quickly?
Generally, it takes these seven steps to pay your debt off quickly:
Step 1 – Establish What You Owe
You can only tackle the debt monster if you know what you are dealing with beforehand. So, start by listing all your debts alongside their respective interest rates and minimum monthly payments.
Step 2 – Include Your Debt Payoff in Your Budget
Now that you know your debt, you can include it in your Budget. If you don’t have a Budget yet, it’s time you create one and factor it into your monthly debt payments.
Step 3 – Start Paying Down Your Debt with the Debt Snowball Method
With the Budget in place, it’s time you start paying down your debt. We recommend the Debt Snowball Method over others because it enables you to achieve small wins that build your momentum to tackle even harder or bigger debts. You concentrate on clearing one debt at a time, making it easy to get out of debt quickly.
Here’s how to go about paying your debt using the Debt Snowball Method:
- List your debt from the smallest to the biggest regardless of the size of the interest rates
- Note down their minimum monthly payments
- Make minimum payments on all debts – apart from the smallest
- Attack the smallest debt with a vengeance – use all the cash you get to save up, free up, or receive bonuses and gifts.
- Upon clearing the smallest debt, tackle the next small debt using the same strategy.
- Continue attacking the next smallest debt until you clear the last debt
Other Debt Payment Strategies
Other than the debt snowball method, here are other debt payment strategies we don’t highly recommend:
1. Debt Consolidation Method
Debt Consolidation is when you combine several debts into one big payment. So, instead of worrying about multiple payments, you only worry about one. However, it’s not the best debt payment strategy, as you pay for the debt longer than you could if you were to tackle it individually.
So, in essence, Debt Consolidation keeps you in debt longer, and you want that. You want to get out of it as soon as possible.
Also, even though the initial interest rates are lower, there’s no guarantee they’ll stay that way. Often, the interest rates increase over time, and it becomes even more expensive to pay for that one payment.
Moreover, you only combine multiple debts into one. You don’t get out of debt doing that until you pay the last dime.
2. Debt Avalanche Method
Also known as Debt Stacking, Debt Avalanche involves paying your debt from the one with the highest interest, regardless of the minimum balance. The problem with this debt payment strategy is that it doesn’t enable you to enjoy smaller wins and build momentum like in the case of Debt Snowball. With it, the first payoff may seem like a tall order and take time, and that could discourage you from paying your debt.
3. Debt Settlement
Debt settlement involves paying someone to negotiate for lower rates with your lenders on your behalf. We don’t advocate this debt payment strategy either, for obvious reasons. There are no guarantees that the lender will ease the terms, and because you’ll be paying the negotiators money, you should use it to get out of debt. It’s thus a no-no for us!
4. Debt Refinancing
Debt refinancing involves replacing one debt with another. While this can be beneficial if the replacement debt has lower rates than the existing loan, it often doesn’t turn that way. Thus, we don’t recommend it as it doesn’t get you out of debt, but you go in circles.
5. 401(K) Cash Outs
Unless you are pushed to the corner, perhaps with a foreclosure or bankruptcy, a 401(K) cash-out is often not the best strategy for paying a debt. Essentially, such withdrawals are often characterized by hefty penalties, taxes, and other fees, which you would rather avoid.
Step 4 – Avoid Taking More Debt
Now that you are paying down your existing debt, you shouldn’t take any more loans. No more credit card usage or mobile loans. Here’s how to avoid being in debt when trying to get out of it:
- Set up an emergency fund
- Pay in cash instead of using credit cards
- Delete your credit card payment details from online store accounts
- Adopt a saving culture
- Only focus on needs
- Monitor your spending
- Buy insurance – especially life, home, and auto insurance
- See a financial counselor
Step 5 – Pause Investing Momentarily
While investments are essential for building a financial future, they can slow down your debt payment. To get out of debt quickly, you must pause investing momentarily. At least, that allows you to free up some money and channel it into debt repayment. Once you are out of debt, you can resume investing.
Step 6 – Cut Down on Unnecessary Spending
Unless you cut down on unnecessary expenditures, you will likely take longer to get out of debt. You must free up more cash to pay your debt using Debt Snowball.
Here are some ideas to help you cut down on unnecessary spending:
- Set a Budget and stick to it
- Avoid unnecessary purchases – shop with a list if possible
- Cancel unnecessary subscriptions
- Downsize or move to a cheaper house
- Sell off your extra car, use public transport, or bike to work to save on car costs
- Cook at home instead of eating out
Step 7 Improve Your Income
Lastly, you could use some extra income if you want to get out of debt faster. Here are some suggestions:
- Work overtime if your job allows you to do it
- Find a second job – preferably work part-time
- Switch jobs if you can find a better-paying alternative
- Start a business
- Find a side hustle
- Become an online freelancer – Check out what to do on Upwork or Fiverr
How to Pay Off Debt and Save Money
It’s never easy to pay off debt and save simultaneously, but it’s possible. You can simultaneously pay off your debt and save by creating a working Budget and including your debt payoffs. Once the Budget is in place, focus on needs and use whatever you save for debt payment. Additionally, automate your savings to only cater to the most necessary needs.
How to Pay Off Debt with Low Income
Just because you have a small paycheck doesn’t mean you have to succumb to debt. You can pay it off. Here are some ideas on how to pay off your debt despite a low income:
- Stop taking on more debt
- Set up a starter emergency fund – which should equal at least $1,000
- Create a Budget that matches your earnings
- Use the snowball method to start paying down your debts
- Find ways to increase your income – perhaps a second job, side hustle, or work overtime
- Cut down on unnecessary expenses
How to Pay Off Debt with No Money
Though it’s challenging to get out of debt with no money, it’s doable. It starts with finding a source of income, which could be a job, a side hustle, or even freelance work. Once you start working, you can channel some of your earnings to paying your existing debt.
You can also pay off your debt by selling something valuable. It could be a car, property, or anything else you own whose value matches or exceeds the existing loan.
Concluding Thought:
Now, you know how to pay off debt quickly. Start by determining the size of your debt and include it in your Budget. Then, use the Debt snowball method to start paying it down, avoid taking any more debt, and momentarily pause investing. Don’t forget to cut down on unnecessary expenditures and increase your income.
You can also check out this new book, Winning the Game of Debt, on our online shop, where I share foolproof ideas to get out of debt and eventually attain financial freedom. The book doesn’t just talk about how to pay your debt but also addresses the debt traps and how to avoid them, among other valuable information.
