Last Updated on November 26, 2020 by Emma
There are two main ways to pay off debt quickly; the debt avalanche and the debt snowball methods.
The debt avalanche involves listing your debts from the highest to the lowest interest rate, so you first repay the debt that has the highest interest rate. This method works well if you want to minimise the amount of interest that you pay on your debt.
The debt snowball method is a distinctly different way to get out of debt that is recommended by the financial guru Dave Ramsey. It involves listing your debts from the lowest balance to the highest balance and paying them off in that order. Although you are ignoring the interest rates in that model, Dave has found that it has better results. In Dave’s experience, the motivation you achieve from paying off the first small debt fuels the motivation you’ll need to get out of debt fully, by paying off the higher balances. In my personal experience, I’ve also found the debt snowball method to be in the most motivating and therefore effective way of paying off debt.
Disclaimer: This post contains affiliate links which means my blog earns a small commission if you use them, at no extra cost to yourself. This article does not give financial advice; it captures lessons from my experiences and research over the years.
So we’ve learned two methods for paying off debt, but how do you get your debt paid off quickly?
Table of Contents
1. Start with a budget
The first step is to sit down with a pen and paper or a spreadsheet on your computer, and list your income and necessary expenses such as your food, rent, mortgage, lighting, heating, essential clothing, insurance, etc. That will then give you a good picture of how much money you have left to repay your debts, and which items of spending you can cut back on.
For example, if you are spending £1,000 on food each month, can you shop at a cheaper supermarket or buy the supermarket’s value product range to save some money and instead use it to pay your debts?
Dave Ramsey recommends building an emergency fund of $1,000 before attacking your debt. That way, you have a buffer to use if you face an emergency, rather than having to take out personal loans or get into more credit card debt. Keep your money safe in a separate bank account or in one of the many savings account options you’ll see on the market, so you will be less tempted to spend it. Just make sure you can access the money quickly in an emergency.
Once you are out of debt it’s a great idea to have savings accounts for any significant items of spending that you want to make in the future, for example, saving for a deposit on a home, or buying a car, or a present for your husband or wife.
For my top tips on saving money, you can read my article Tips to Start Saving Money.
2. Track your spending
Once you’ve set your budget, it’s critical to track your spending to make sure that you are sticking to your financial plan. There are a variety of ways of doing this, including:
- The envelope system – keep cash in an envelope for each type of expense. Once your food envelope is empty, you know you’ve reached your budget limit.
- Use a spreadsheet – keep an eye on your bank statement and update where you are against each budget line by updating the document throughout the month.
- Use a budgeting app – there are lots of great apps available that will communicate with your bank accounts and automatically track where you are against your budget. In the US, Dave Ramsey’s Every Dollar app receives excellent feedback from the people who use it. In the UK, YNAB (You Need A Budget) is one of the most popular and what’s more it’s free to college students for a year.
3. Increase your income
While your budget will help you to decrease your expenses, you can also make significant progress to pay off your debt fast if you increase your income by taking on a second job or potentially starting a side hustle.
You can read some ideas for how to do this in the following articles:
4. Switch your highest interest rates for lower interest rates
If you are paying a high APR such as 18%+ on credit card debt and you have the option to move your credit card balance through an interest-free balance transfer deal, then this is worth considering. If you do transfer credit card debt, it’s essential to continue to pay this down because even the best credit cards become interest-bearing with time.
In the debt snowball method, you would pay off your credit card balance as soon as it is the smallest debt on your list. With the debt avalanche method, you would pay it off as soon as it’s the highest interest rate of all of your loans.
Equally, if you fail to meet the minimum payments, it will damage your credit score, which could be a problem if you are looking to take out a mortgage in the future. Most providers use credit scoring to decide how much to lend; however, it is possible to find some providers who will work in another way, if you have a bad credit score. Typically repaying your credit accounts will improve your credit score over time.
If you’d like to find out more about your credit report, you may be able to register for a free look at your credit with a provider such as Experian.
5. Pay more than the minimum repayments
Just making the minimum repayments could see you making repayments for the rest of your life if you have debt that attracts a high interest rate. Regardless of whether you choose the debt snowball or the debt avalanche method, you will need to increase the repayments on the smallest debt that you are currently repaying or the one with the highest APR.
6. Pay off your debts before making non-essential purchases
If you are making good progress with your debt management plan it can be tempting to reward yourself by making some purchases; however, this is not the time for shopping sprees! Try to avoid temptation by not visiting shopping malls, uninstalling shopping apps that you use regularly and consider giving your credit cards to someone you trust to look after; perhaps your husband or your wife if they are good with money.
7. Get your partner on board with your ‘get out of debt’ plan
Becoming debt-free is so much harder if your partner is not on board. In the worst-case scenario, as fast as you pay off your debt, they could be taking on more debt. Take the time to sit down with your husband, wife, girlfriend, boyfriend or other partner and explain why this is important to you and what your vision for a debt-free life looks like; does it mean more travelling, more time at home, or something else?
When partners have a shared vision of why becoming debt-free is important, they are much more likely to stay the course with their debt management plan.
8. Shop around for the best car insurance and home insurance deals
When you are paying off debts, shopping for the best deals is a great way to save money. Price comparison sites for your essential insurance could save you a significant amount of money, so make sure to check out their quotes when your car insurance and home insurance is due for renewal.
9. Avoid car loans
Once you are on the path to repaying your debts, it’s important to take control of your situation and avoid taking out further debt. For example, if you need to buy a car, avoid taking out a car loan, also known as an auto loan. You’ll be paying interest charges at the same time as the car is costing you money and depreciating. Instead, try to save up so that you can buy a modest second-hand used car for cash. Yes, it may not be your dream car, but once you are out of debt, you can save up to buy that in the future if it is still important to you. It feels great knowing that the car is yours, rather than financed with an auto loan.
10. Sell unnecessary possessions
The typical person has at least £1,000 of stuff hanging around their house that they no longer need. By simply listing this on a site like eBay, your local community Facebook group, Gumtree (UK), or Craigslist (US), you could earn some much-needed cash to put towards repaying your debt.
Some people who are in substantial amounts of debt go as far as selling and downsizing their houses and cars to get out of debt faster.
11. Understand how and why you got into debt
All of these techniques to get out of debt fast are great, but the whole exercise is pointless unless you get to the root of why you got into this situation in the first place. With this insight, you can make lasting changes, so this never happens again.
How deflating would it be to go to all of the effort to clear your debts only to find yourself in the same position, a year or two down the line?
You have the power to change your mindset around debt completely. For example, you could:
- Close your credit cards and agree never to buy anything on finance every again; this is Dave Ramsey’s model. The only debt he believes is acceptable is a 15-year mortgage on your house.
- Stick to the routine of creating a monthly budget and tracking your spending each month.
- Develop the habit of saving for items that you don’t have the cash for.
- Wait 24 hours before buying something that you feel tempted to buy! You could wait as long as 30 days for higher value items such as a car.
- Join a community of like-minded people who are staying debt-free to keep you motivated.
- Listen to people like Dave Ramsey, who encourage sensible ways to manage your finances. He has a free YouTube Channel, podcast and Facebook account. You can also read his books:
What about student loans?
The way to treat a student loan depends on where you live. In the US, student loan debt is far more onerous than the UK system, so Dave Ramsey’s advice is to include it within your debt snowball. In the UK, student loan repayments do not attract the same high levels of interest and your repay them as your income reaches certain levels. For these reasons, some people decide to make investments rather than repay them early.
Other people still decide to pay off their student loan early because they want to be completely debt-free; it comes down to personal preference.
What is the fastest way to pay off debt?
The fastest way to pay off debt is to cut your expenses while increasing your income, so you maximise the amount of money that you have to repay your debt.
Can you pay off debt too fast?
Arguably if you do not leave yourself with enough money to lead an enjoyable life where you can pay for at least necessities, then you are trying to pay off your debt too quickly. If your debt repayments take many years, then you will need to find a system that keeps you motivated, but also allows you to live a life that brings you joy in the meantime. The good news is that there are so many things we can do for free or very little money, such as walks in beautiful parks, exercise, learning a new hobby, reading a good book from the local library, volunteering etc.
How do I find the best balance transfer credit cards?
A simple search on google will help you find some good options for balance transfer credit cards. Here are some great resources for readers in the UK:
What if I lose my job and can’t repay my debt?
A job loss is a very stressful situation to experience. You’ll need to focus on keeping a roof over your head, food in your cupboards and heating on. You can speak to your creditors to see if you can negotiate a payment holiday due to hardship, while focussing your efforts on finding a new job. You could also explore ways to earn money online at home and some side hustles.
What is an APR?
APR stands for Annual Percentage Rate, and it gives borrowers details on how much their debt will cost them. Generally, the lower the APR, the less the debt will cost you over time. However, the APR only tells you the interest rate that the finance company will apply to your account. The APR won’t factor in any late payment fees or any payment protection insurance that you may have selected, so it’s essential to read your credit agreement before signing anything.
Where can I get free help with my debt?
There are many charities such as Citizens Advice Bureau, National Debtline and StepChange that provide free information and resources to individuals who are struggling with their debt. They also offer details of debt management options for individuals who do not have the means to meet even their minimum repayments such as:
- A debt consolidation loan to bring all of the debts into one loan account with one, lower repayment
- Individual voluntary arrangement (IVA)
- Debt relief orders
If you are considering a debt management plan such as an IVA, it’s essential to get robust financial advice, so you understand the implications of this financial decision. For example, with an IVA, it will stay on your credit report for six years.
What are your experiences with debt?
What are your experiences with debt and getting out of debt?
Are you a fan of the debt snowball or the debt avalanche?
Let us know in the comments.
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