Getting Out of Debt Quickly and Efficiently

Credit cards, student loans, personal loans, payday loans, car notes, and mortgages are all common types of debt. Millions of Americans are struggling under the cumbersome weight of these debts, and many of them don’t see any way out of the financial hole that they’re in.

Are you among that number? Do you feel like your money is committed to creditors before you even get to pay your monthly bills or buy groceries?

If so, you’re certainly not alone.

According to a recent study published by CNN, 76% of Americans say that they’re living paycheck to paycheck and that debt is a significant source of stress in their lives. This means that there’s a better chance than not that you’re stressed about your debt.

Fortunately, there are steps that you can take to get out of debt. Also, it’s encouraging to know that paying off debt doesn’t have to mean that you’ll spend the rest of your life pinching pennies. Today, learn more about getting out of debt quickly.

Make a Budget

Paying off debt begins with getting organized. Whether you’re drowning in tens of thousands of dollars of debt, or you just have a few hundred dollars that you need to pay off, creating a budget gives you the chance to take an organized approach to your debt.

Since you are budgeting your money with the goal of erasing your debt, that’s where you’ll want to put any extra money in your budget.

While you cannot neglect to pay for your basic needs (food, water, and shelter), your budget will help you identify where you’re spending money that you can use to pay off debt.

There are two important things to keep in mind when you’re working on this budget. First of all, your budget needs to be realistic. This means that you only budget the amount of money that you can reasonably expect to bring home.

If you usually bring home $1,500 on your paycheck, don’t budget for $2,000 just because you had one week where you worked a lot of overtime or got a bonus.

Also, you’ll need to be realistic when budgeting for your monthly expenditures. Your monthly utilities aren’t going to suddenly decrease by 25%, so be honest with yourself.

Once you have your regular necessities figured into your budget, account for the minimum monthly payments on your debts.

With that money that’s left over, you can start formulating your plan for getting out of debt. The money that you have left is there for entertainment, dining out, and other leisure activities. The more of that money that you can start putting toward debt, the quicker you’ll be able to get things paid off.

Making this budget also helps you identify areas where you’re wasting money. Are you leaving work every day on your lunch break and buying fast food or going to a restaurant? If so, start packing your lunch.

The increase in your monthly grocery budget will be negligible, but your savings will be significant. Something as simple as cutting out that $10 a day that you’ve been spending on lunch can quickly lead to an extra $200 per month that you can put toward your debts.

Exceed Your Monthly Minimum

All of your debts have a minimum monthly amount that your creditors require you to pay. Unfortunately, because of interest rates and other factors, if you only pay the minimum amount, it’s going to take you years to get things paid off.

CBS recently published a report that focused on credit card debt. According to their findings, if you have $10,000 in credit card debt and only make the minimum monthly payments, it will take you roughly 29.5 years to pay off the debt.

Since you’re hoping to pay off debt quickly, you certainly don’t want to make payments on the same credit card for 30 years. For context, 30 years is the average life of a mortgage. No one wants to spend the same amount of time paying off a $10,000 credit card bill as they would spend paying off a $200,000 home.

With this in mind, it’s important to start paying more than your monthly minimum on your debts. Obviously, you may not be able to exceed the monthly minimum on all of them at once, but that problem presents us with our next tip for paying off debt quickly.

Choose Your Approach

Now that you’ve found some places in your monthly budget where you’re wasting money, and you’ve committed to exceeding the minimum monthly payments, it’s time to choose how you’re going to do so.

For the sake of this exercise, we’re going to assume that you’ve found an extra $250 per month to put toward your debt.

Whether it’s from cutting out your morning coffee stop, choosing to brew your own coffee at home, or you’re going to cut out the frequent trips to local restaurants, let’s assume that you have $250 a month to work with.

Putting an extra $50 a month on five different debts probably won’t speed up your debt repayment plan all that much. Instead, use the entire $250 per month on a single debt. The order that you choose to repay these is up to you.

Some people choose the snowball method, highly touted by financial expert, Dave Ramsey. Under this plan, you’ll start with the smallest debt on your list and work your way up to the largest.

This means that if your smallest debt is a credit card with a $2,000 outstanding balance, you focus on adding all $250 of your “extra” money to your minimum monthly payment until the debt is erased.

When that one is wiped out, you’ll take the minimum monthly payment from that card and combine it with the minimum monthly payment on the next smallest debt. Then, add your $250 of “extra” money, and wipe that debt out. You work your way up until everything is paid for.

You can also choose a similar approach, but instead of just looking at the balance, look at the interest rates. Paying off the card with the highest interest rates first does allow you to save more money in the long run, but it may take longer.

Ultimately, you’ll need to consider which strategy works best for your financial goals in the short term and the long term.

Pick Up a Side Hustle

One of the most common hurdles that people run into when trying to pay off debt is that they just can’t find the extra money in their monthly budgets.

With 76% of Americans living paycheck to paycheck, it’s entirely possible that you don’t have a lot of extra funds that you can use to wipe out existing debt.

If that’s a problem that you’re dealing with, consider picking up a supplemental source of income. Depending on where you live, you may be able to make a few hundred extra dollars each month doing DoorDash, Uber, or another type of side gig.

The gig economy is stronger than it’s ever been in the United States, which means there are ways that you can start adding money to your monthly budget.

Avoid Taking On New Debt

We live in a society where we’re told to buy now and pay later. While it’s certainly fine to enjoy the money that you make, many people face insurmountable debt because they’re living above their means.

If you’re in this process because you want to pay off debt, it’s important that you avoid taking on any new debts.

Yes, this means that you have to tighten your belt and avoid making any major purchases during this process. It may mean that you won’t go on vacation for the next couple of years. You’re not going to want to purchase a new car unless you’re left with absolutely no alternative.

These sacrifices may seem painful at the moment, but when you’re able to look at your credit report and see no outstanding debt, you’ll realize that it was all worth it.

Make Today Day One

Have you been thinking about working on your debt, but you’ve been putting it off because you’re not sure where to start?

Stop putting off until tomorrow what you’re ready to get done today. These tips can help you pay off debt quickly so you can embrace the freedom of financial security in the future.