12 Tips for Getting Out of Debt Fast
Do you feel burdened by debt? Well, you’re not alone. The typical American household carries an average debt of $145,000.
That’s a lot. And if you let it get out of hand, you could be paying off your debt for the rest of your life and never build up enough wealth to have a comfortable retirement.
Fortunately, there are ways to eliminate debt quickly. They take commitment, careful planning, and self-discipline. But if you stick to them, you can prevent debt from destroying your future.
So follow these steps to get out of debt fast:
- Stop borrowing money
The first step is to quit adding to your debt. This means stop swiping your credit card and taking out loans when you don’t have enough money to pay in cash.
If you’re used to using credit, you may need to reshape your attitude toward money and spending for this to happen. The key is to only spend money you have in your bank account, nothing more.
- Track your spending
Next, figure out where your money is going. Write up all your recurring bills like rent, utilities, phone service, and subscriptions. Then track what else you spend money on throughout the month.
You can track your spending on a spreadsheet, on a free budgeting app like Mint or PocketGuard, or with pen and paper. The key is to do it consistently for at least a month so you have a better idea of how you’re spending your money.
- Create a budget and stick to it
At this point, you’re ready to create a budget. Look over your spending habits tracked in the previous step and find places to cut unnecessary spending. Maybe you can cancel some unused entertainment subscriptions or cut down on eating out. Or try meal planning so you don’t splurge at the grocery store.
Make your budget with the whole family so everyone gets on the same page about financial goals. Then write out the budget, put it somewhere everyone can see, and have everyone commit to doing their part. If you don’t do this, getting out of debt will be much harder.
You can also try the envelope system. This requires you to get an envelope for each spending category and insert the budgeted amount in cash at the beginning of each month. If you commit to only using the cash allotted in each envelope, you’ll be forced to stay within budget.
- Pay more than the minimum
Paying the minimum on your debt payments will keep you in debt longer. So try to pay more than the minimum every chance you get. This will significantly reduce the amount of time it takes you to become debt-free.
- Follow a debt payoff strategy
With your budget set, you’re ready to choose a debt payoff strategy. The two most popular are the snowball method and the avalanche method.
The snowball method involves listing your debts from smallest to greatest, making the minimum payment on all debts, and then tackling the smallest debt first. Once the debt is paid off, tackle the next smallest debt, and so on. The extra funds you free up by paying off one debt will create momentum to help you pay off the next one faster, creating a snowball effect.
The avalanche method is similar, except that you start with the biggest debt first. It takes longer to gain momentum, but it’ll be faster and cheaper in the long run. Choose a debt payoff strategy that works for you and stick to it.
- Renegotiate credit card debt
Call your credit card company to renegotiate credit card debt. You’d be surprised at what a simple phone call can do.
Credit card companies want to keep your business so they are often willing to negotiate terms to keep you as a customer.
You can ask for a lower interest rate, lower fees, and more. This will help more of each payment go toward reducing your debt so you can pay off credit card debt faster.
- Lower other bills
Another way to reduce debt faster is to lower other bills. Think of your utilities, phone, and internet bill. Many people never try to negotiate these, but it doesn’t hurt to try. Again, some companies will work with you to keep your business.
- Increase your income
In addition to lowering your expenses, try increasing your income. This also puts more money in your pocket to put toward paying down debt.
Ask for a raise or get another part-time job. These days, there are tons of side hustles you can start to make some extra cash.
You could walk pets, clean windows, drive for a rideshare company like Uber or Lyft, deliver food with DoorDash or Uber Eats, sell art online with Etsy, start a dropshipping ecommerce business, and more. The possibilities are endless.
- Sell stuff you don’t need
Sell stuff you don’t need. You probably have things laying around that you never use like old furniture, books, clothes, or games. Have a traditional yard sale or list them on online marketplaces like eBay, Craigslist, or Facebook Marketplace. You can then use the proceeds to help pay off debt.
- Consolidate debt
If you have a lot of debt accounts, it might make sense to consolidate your debt. For example, you can consolidate high-interest credit card debts with 0% APR balance transfers to accounts with long introductory periods. Or you could use a personal loan to consolidate debt into a loan with a better interest rate.
Debt consolidation can simplify your debt payment plan and save you money. But be careful. Many debt transfers come with an upfront fee. And you should never draw on your retirement or home equity to consolidate debt.
- File for bankruptcy
As a last resort, you can file for bankruptcy. Bankruptcy attorney Devin Sawdayi says this:
“Sometimes filing for bankruptcy is your best option. Yes, it will hurt your credit, but it’s better than allowing an insurmountable amount of unpaid or delinquent debt to hurt your finances indefinitely. The other advantage of bankruptcy is that it eliminates the constant stress and worry that is ever-present when a person is carrying large, high-interest credit card balances.”
When you have no other options, filing for bankruptcy might be the right answer.
- Get professional help
Lastly, get professional help. Debt can be complicated and overwhelming, so have a financial professional coach you on what debt repayment plan is best.
Debt is a scary thing. But if you follow the steps above, you’ll get a handle on it sooner than you think. Take it one step at a time and eventually, you’ll feel the freedom of living debt-free. The sooner you start, the better.