In 2018, I paid off $4K of credit card debt. Then in 2019, I paid off $10K in taxes I owed to the IRS. So here are my tips on how to pay off debt fast, showing you how I paid off $14K of debt in less than 2 years.
1. Start recording every penny you spend and earn.
Ask the average person how much they spend each month, and they’ll likely have no clue. Or at best, they’ll make some pretty crappy guesses.
When you’re trying to pay off debt, before you do anything, it’s CRUCIAL that you first gain AWARENESS of your situation. A lot of times, when we owe money, we’re scared to look at our bank accounts and credit card statements, our bills and expenses. But that’s a mistake.
The only way you’re going to pay off debt fast is to analyze where you currently are.
To pay off my debt, I subscribed to budgeting software You Need a Budget. It was worth every penny. It automatically connects to my bank and credit card accounts and pulls every expense and income that I get. That way, I could see how much I was actually spending every month. It’s like a diagnostic test of your financial situation.
You can use spreadsheets or even a piece of paper, but I highly recommend YNAB. I credit it with helping me get out of debt. It makes it easy to track your expenses because it does it automatically, whereas with spreadsheets, I always failed to keep them up to date.
2. Cut every expense you can.
Once you find out exactly how much you’re spending and earning each month, it’s time to rein in your spending. Be brutal. Cut everything you can.
I know what you’re thinking, “Do I REALLY need to cut my Netflix subscription when I can just sell some stuff and make more money to cover it?”
I used to think like that too. I enjoyed spending and didn’t want to restrict my spending, so I kept promising myself I’d make more money next month to make up for it.
But here’s something my dad told me that changed my mindset: “Earning more money is hypothetical. Saving money is the only concrete thing because it’s based on what you already have.”
Sure, you may INTEND to sell your couch next week to earn extra income. BUT, have you actually sold your couch? What if no one wants it? What if you sell it for less than you expected? It’s all hypothetical. It’s not real. Cutting expenses saves the money you DO have. Banking on “making more money” later is just a hope for something that may never happen.
Some ways to cut expenses:
- Cook more often versus dining out
- Negotiate your medical bills
- Cancel cable and watch things on YouTube for free instead
- Switch cell phone carriers to one that’s cheaper (I HIGHLY recommend Visible)
3. Create a budget.
You MUST create a budget. A budget, as YNAB says, “gives every dollar a job.” That means you know EXACTLY how much you can spend on groceries, the electric bill, your car payment, and rent each month.
You don’t just randomly buy a new dress because you see money sitting in your bank account—no! With a budget, you will know if you have any dollars set aside for that dress or not. And if you don’t, you can MOVE dollars from one category (say, eating out) to the clothing category to buy that dress. If you cannot move any dollars—ya don’t buy the dress. Get it?
Sticking to a budget means you will not incur more debt as you work to pay off your existing debt. It also ensures that you actually have money to pay what you owe.
4. Find a way to live rent-free.
For most people, paying rent makes up about 30% of their expenses—it’s the biggest expense! So if you want to pay off debt FAST, eliminate rent. There are so many ways to live rent-free.
Here are some quick ideas:
- Move in with your parents, family, or friends
- Work as a live-in nanny or caregiver
- House sit (I used TrustedHousesitters to live rent-free while I was paying off my debt)
- Live out of your car
5. Develop side hustles.
Once you’ve done everything you can to SAVE money, it’s time to focus on making more money so you can throw it toward your debt.
If you are an employee, the first step is to ask for a raise. Beyond that, you can earn extra income on the side by starting some side hustles.
Here are some ideas:
- Walk dogs
- Clean homes
- Write blog posts for companies (I do this!)
- Offer coaching services
- Renting out a room in your house
6. Read debt payoff motivation stories.
When you’re in the thick of your debt payoff journey, it often feels like you’re drowning in the amount of the money you owe and that you’ll never be able to come up for air. What gave me hope and motivation to keep going was reading debt payoff motivation stories.
You can simply Google your situation, such as “how I paid off $25,000 in student loans” or “how to pay off $5,000 of credit card debt.”
7. Sell assets.
To make the biggest dent in your debt, you should consider selling an asset. For me, my biggest asset was my business, and as much as it pained me to do so, I ended up selling it to pay off my debt.
Think of any asset you own, such as:
- House (of course, it’s super risky to sell your house!)
- Collection of rare records
- Designer handbags
Anything you can sell that you don’t need, consider selling it.
8. Consolidate your debts.
Another option to pay off debt fast is to consolidate your debt. What this means is that you’ll actually take on another loan or credit card with a LOWER APR than your current credit cards or loans and pay off the former.
So, for example, let’s say you have $4,000 of credit card debt on a credit card with a 20% APR. You could apply for a credit card with a 15% APR and 0% intro APR and do a balance transfer from the 20% APR card to the new 15% APR card. That way, you end up paying less in interest than before. You still need to pay off the new card, of course!
As you can see, I’ve made a lot of financial mistakes. But I’m SO happy to now be living a debt-free life! You can do it too. I believe in you!