How to Get Out of Debt Fast – Realistically Meet Your Goals
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The debt problem ails millions of Americans, with many more added as updated data is made available each quarter. In the second quarter of 2022, U.S. household debt rose by 2% to $312 billion, a number driven higher by the usual suspects, according to the New York Fed. Mortgage balances increased by $207 billion, and credit card balances racked up their largest year-over-year percentage increase in over 20 years, the New York Fed said.
There are many reasons you might want to get your finances in order, including improving your credit rating and preparing for a major purchase like a house or car. But you don't just arrive at a debt repayment strategy without doing any homework — that may have disastrous consequences. You'll want to begin by reducing your monthly expenses and going from there.
Here are some things to keep in mind when trying to get out of debt.
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How to get out of debt fast
Make a budget
The first step to getting out of debt is to create a budget that lists the items you need and the items you want to buy. Your budget should include all of your expenses, as well as your income. You should calculate how much you are spending each month and devise a monthly budget that includes all your living expenses. You should also set aside money for your emergency fund to cover any unexpected expenses. You can use one of the many budgeting apps available to help you manage your money effectively, or you can create a spreadsheet to keep track of your expenses. Once you have a budget in place, stick to it and avoid making any unnecessary purchases.
Paying off your debt is important to becoming financially independent and stress-free. Make sure that you create a realistic budget and stick to it to manage your money effectively and eliminate your debt as quickly as possible.
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Define your goals
To get your finances in order, you need to set clear goals and determine what action needs to be taken to get there. In this case, it's pretty cut and dry: you're looking to repay debt faster and become debt-free in the next few years. And the best way to stay on track is to keep a record of your spending and saving habits so you can pinpoint where changes need to be made to improve your financial situation.
Come up with a game plan
Now that you know how much money is coming in and going out each month, you can come up with a debt payoff strategy. In general, there are two main debt repayment strategies:
- Debt avalanche method: This strategy entails first paying off your current debts with the highest interest rates. You should make minimum payments on all your debts but make extra payments toward the debt accruing the highest interest rates. Once that debt has been paid off, you can start directing money towards other debts on the list.
- Debt snowball method: In this approach, types of debt are arranged in order of size, starting with the smallest balance. You continue to make the minimum monthly payment on all debts but add a little extra to the smallest balance debt. When the first one has been paid off, you move on to the next smallest debt. This continues until all debts are paid off.
These methods allow you to save more money in interest payments as you pay off your debts faster.
Related: How to Pay Off $10,000 in Debt
Debt Consolidation Calculator
Consider consolidating your debts
If you have a significant amount of debt that you cannot afford to pay off, you may want to look into a debt consolidation loan. You basically take out a loan to cover your outstanding debts and then using that money to pay off your current loans. The new loan may have a lower interest rate than the original and may also give you more time to repay the borrowed money. This approach means you'll only have to worry about one loan (the debt consolidation loan). As a result, this option is more convenient and affordable than repaying your existing debts individually.
Get a balance transfer card
If you're not up to date with personal finance, then know this: credit card debt is the bane of many people's existence. Oftentimes, credit cards are used when people don't have enough money in their checking account to pay for what they want. However, this leads to accumulating a lot of credit card debt. Worse yet, the interest charged on most credit cards can be quite high, so if you make the minimum payment each month, you end up owing more money than you originally spent.
Thankfully, many leading lenders offer 0% APR balance transfer cards. Think of these cards as a debt consolidation loan, but only for credit card debt.
Enroll in a debt management plan
Debt management companies directly line with your creditor and negotiate on your behalf. The topic of discussion? To reduce the debt you have to pay and secure a better deal for you. Most debt relief companies offer free consultation, with some charging a fixed monthly fee or taking a slice from the amount you save. In addition, these companies only work with unsecured debts like credit cards, personal loans, or medical bills; secured loans are off the menu, as are student loans. Once you've locked down a company you think is solid, you can simply go to their website and start the application process there.
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- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Explore debt settlement
You may be considering debt settlement as a way of eliminating your debts. A debt settlement is a process in which you make regular payments to your creditors. This can involve debt payments in full, with interest and/or a discount. Ultimately, it depends on the agreement you reach with the creditor. That's why it's best to leave it to a professional at dedicated debt settlement companies because they're more likely to work out a repayment plan that's in your favor.
This can be an attractive option because it can save you a lot of money in the long run by reducing the interest you pay. It also allows you to repair your credit score and regain control over your finances. Unfortunately, the debt settlement process can be very complicated, and it can be difficult to predict the results in advance.
Sell unwanted items
This is a little out of the box, honestly. But that's the exact mind frame you need if you're serious about becoming debt free.
You can sell some unwanted belongings and direct that money toward your monthly installments. This is a great way to get rid of items you can live without and simultaneously get a little extra cash in your pocket. A good way to get started is to look for items that are in good shape but have no value to you. This could be something like an old laptop you don’t use anymore or a piece of furniture that isn't your style anymore. Once you have chosen the items you want to sell, you can post an ad online or use an auction site for auctioning them off to the highest bidder. This is a great way to earn a little extra money and simultaneously clear up some space in your home.
Debt Consolidation Calculator
Things to avoid when repaying debt
Things that should be avoided as you repay debt is a question many people ask when trying to pay back their debts. Here are a few things that you should never do:
- Make minimum payments: The minimum payment you make on your credit cards should never be more than 1% of your total outstanding balance. If you make the minimum payment, you are only covering a small portion of the amount you owe and making the rest of your balance stretch over a longer period. You may even feel like the needle is barely moving because minimum payments don't get you anywhere.
- Use overdraft facilities with banks: Lenders frequently offer their customers overdraft protection on their accounts in the form of an overdraft facility. This means that the bank will approve a transaction that will leave you with a negative balance on your account and charge you a fee for doing so. Using an overdraft facility can make you vulnerable to paying fees and interest on your monthly payments.
- Buying things you don't need: Many people fall into impulse buying and end up spending their money on unnecessary items they don't need. Try to limit yourself to buying only the items you need and only pay in cash or via a debit card whenever possible. This way, you will never have to spend more than you have budgeted for, and you will be able to keep your finances under control.
- Late payments: You should make a concerted effort to pay your monthly bills on time to avoid racking up additional charges and fees. Late and missed payments are among the leading causes of financial trouble. They also negatively affect your credit score, meaning you may not be able to get a lower rate on future loans.
Relieve $25k+ in Credit Card Debt or Personal Loan Debt With TurboDebt
- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
The bottom line
Being in debt is a huge financial burden you often have to deal with, but that doesn’t mean you have to struggle under it forever. If you are looking for ways to dig out your debts and make your finances more manageable, the time is now. The Fed is on a war footing as it boosts interest rates to tame inflation. This means you may not get the best rates in the near future.
Some people have difficulty controlling their finances because they are too optimistic about how much money they can direct toward monthly loan payments. Only by taking stock of your income and spending habits can you get a clear picture of your finances. An unrealistic budget can make it difficult to stick to your plan and make your financial goals a reality. If you think you're not making enough, you could look into a side hustle or get a part-time job. Credit counseling and refinancing your loan are two more options you may want to explore.
Once you've done your homework, you get a basic idea of what to expect down the line, making your debt repayment journey easy and removing any surprises that may come along the way.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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