10 Ways to Get Out of Debt (and Stay Out)
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While credit card debt decreased during the pandemic, over 340 million Americans still hold different types of debt. If you’re seeking debt relief or just want to hit your financial goals to save more and spend less, paying down your debt is the place to start.
Not only can debt wreak havoc on your finances, but it can also hurt your credit score and diminish your confidence. Here are 10 ways to pay down your debt fast.
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10 ways to get out of debt, fast
1. Create a budget
If you want to get out of debt, you have to first understand how much money you’re bringing in each month versus how much you’re paying in expenses. The best way to do this is by building a budget.
You want to record how much you make each month after taxes to get started. Once you have that number, you want to start looking at your expenses. This includes your rent or mortgage, transportation costs, utilities, cell phone bill, subscriptions, groceries, and any debt payments. You can also include any money transferred into your savings account in this category. Determine the total amount of money you have leftover, and then you can make decisions about how to pay down your debt. Be sure to also account for building an emergency fund, so you have money available if you lose your job or experience a sudden financial loss.
You can then assign a monetary amount to spend on each category each month and track your spending by reviewing your bank transactions or using a budgeting app or financial products like YNAB or other financial planning tools like your bank’s app or even a Google sheet.
On the other hand, if you find out you’re paying more in expenses than you make each month, you may be charging some of these expenses to supplement your lifestyle. In this case, you’ll want to find ways to cut your spending (I’ll share a few shortly).
2. Live below your means
As you begin making more money in your career, you may find you’re tempted to spend more. This can lead you into a vicious circle where you cannot save anymore and may have the same amount of credit card debt — or more — than when you made less.
One way to fix this problem is to live below your means, regardless of your financial situation. What does this mean? Well, people who live below their means stick to a budget and often cut back on the amount of money they’re allowed to spend on nonessentials. For example, even though you can afford that high-end sushi restaurant, if you’re living below your means, you wouldn’t frequent it monthly — instead, you could save it for a date night or special event.
This doesn’t mean you can’t enjoy little niceties ever, like a latte or two. But if you make $50,000, you might want to scale back your budget as if you only made $40,000, so you can save more money and make higher monthly payments to eliminate your debt.
Some ways to do this include moving into less expensive housing, selling your car if you live in a city and rarely drive, and cutting back on subscriptions and services you don’t actually need.
Related: How to Pay Off $10,000 in Debt
3. Find creative ways to curb spending
When you create your budget, it’s also a good idea to review your spending habits to find out how much you’re actually spending on nonessentials. That way, you can figure out where your money is actually going. Ordering takeout and going out to restaurants, for example, might be eating away extra money that could help you become debt-free even faster.
Instead, find creative ways to keep your spending in check. If you’d like to spend less on restaurants, you might try meal prepping. This can help you save money on your grocery bill by only buying foods you plan on eating and help you resist the urge to order Ubereats.
4. Decide on a debt repayment strategy
While finding extra money in your budget can help you pay down your debt faster, having a good strategy can also ensure you keep going until you’re debt-free. You can explore many methods, but the snowball and avalanche methods are two of the most popular strategies.
The debt snowball method encourages you to pay off the smallest debt you owe first, then work your way up to the next smallest, and so on. You’ll still pay the minimum monthly payment on all your debt but pay more towards the smallest balance. The idea is you’ll pay off one debt faster, which can be rewarding and help encourage you to continue. If you have three credit card balances of $250, $750, and $3,400, the largest debt might feel impossible to pay down. However, by slowly paying down the $250 debt and later on the $750 debt, you’re able to visualize your progress better and keep going.
Instead, the debt avalanche method encourages you to concentrate on the debt repayment with the highest interest rate or APR while paying at least the minimum payments on all other debts. This allows you to pay less in interest over time.
Both methods have their merits, and understanding if you’re more incentivized by checking off tasks or saving money over time can help you find the right strategy to motivate you to become debt-free.
5. Participate in a savings or no-spend challenge
Want to maximize your debt payments? If you find gamification rewarding, you might appreciate a savings or no-spend challenge. There are different types to pick from, and some last a month, quarter, or even a year.
The basic premise is to save a little more each day or pay period for a savings challenge. Some challenges encourage you to save $1 the first day and double the amount each day for a whole month. Doing this could help you save extra money to pay down your debts.
A no-spend challenge is exactly as it sounds. You don’t spend money on nonessentials like clothes, restaurants, entertainment, etc., for a set period, like a week or a month. This can also help you save more money to put towards your debt.
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6. Consider a side hustle
If you don’t make enough to pay down your debt as effectively as possible and you can’t scale back your spending anymore, you could look for a temporary side hustle or a second job. Driving for Uber or selling clothes you no longer wear on Poshmark can help you make some extra money to put a dent in your debt.
7. Make extra payments
Even if you’re already paying more than the minimum payment and have a debt management plan in place to pay off your debt, every extra payment can help. Anytime you get a little extra money, make a plan to put all or a portion of it towards your debt balances. For example, if you’re getting a tax refund, use part of that money to pay down your debt.
8. Look into 0% APR credit cards
I don’t recommend this option lightly, but if you have a repayment plan in place and want to save on interest, a 0% APR card could be a helpful debt repayment tool. You could save big on interest by transferring the balances of high-interest credit cards to a 0% introductory card. For instance, if you have thousands in debt on a high APR card, transferring this amount to a card with 0% APR for twelve months could help you pay off your debt faster and pay less in interest.
Consider balance transfer fees and make sure you can repay the debt within the introductory period — otherwise, a consolidation loan may make more sense.
Related: Best 0% APR Credit Cards
9. Apply for a debt consolidation loan
If you want to consolidate your debt into one monthly payment and perhaps save on interest along the way, applying for a personal debt consolidation loan might be wise. This can help you ensure you only keep track of one debt payment each month. Plus, personal loans tend to have lower interest rates than credit cards. And if your debt is primarily student loans, you can try to refinance your debt into one loan at a lower interest rate. Just be sure to shop around and compare rates from different lenders.
And if you own your home, you could also consider a home equity loan to help pay down high-interest debt. Just be sure you have a solid repayment plan in place before taking this option since it can put you in jeopardy of losing your home if you become unable to repay the loan.
Related: Best Debt Consolidation Loans
10. Avoid credit and debt settlement scams
Be sure to keep your eye out for debt settlement scams. Some scams pose as credit counseling companies aimed to improve your credit report, but credit counselors can’t do anything to improve your credit that you can’t already do yourself. If you do find a debt settlement or credit service you want to explore, be sure to search for reviews ratings on the Better Business Bureau, and never pay upfront until you understand the service you’ll be receiving.
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The bottom line
Living with debt can feel overwhelming. Creating a plan to tackle your debt head-on can offer your peace of mind and help you get out of debt faster. Be sure to budget, cut back where you can, decide on the best debt repayment strategy, and stick with it. Consider getting a part-time job or applying for a 0% APR balance transfer card or a debt consolidation loan if you need to.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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