Having a lot of debt makes life harder. Monthly debt payments can eat up way too much of your income, leaving you constantly strapped for cash.
Not only that, but having too much debt can make it difficult to build an emergency fund or qualify for a mortgage and other loans, which can mean sacrificing your long-term future.
Unfortunately, debt is something far too many people have in common.
According to a recent report from Lending Tree, Americans owed a collective $925 billion on their credit cards as of the third quarter of 2022, and credit cards are charging an average annual percentage rate (APR) of 16.27%, with additional interest rate increases likely in early 2023.
If you want to pay off your debt, you’ve got to face the truth of your total debt amount.
But listen, this isn’t a moment of defeat—it’s the first step to victory! You can defeat your debt. And you will.
Fortunately, there are some strategies you can use to pay off debt faster, save money or both.
But first, you’ve got to know how much debt you have to fight. Look up all your debt balances and write them down.
Get on a Budget
A budget is simply a plan for your money.
It’s how you tell every single dollar where to go so you don’t wonder where they all went.
And right now, you have no time for lost dollars. You’ve got work lined up for that money: You’re paying off debt.
So, create a budget. Right now!
Cover all the essentials, cut out some extras (just for a season, so you can throw more at your debt!), and make sure you’re budgeting for your debt-payoff goal.
The Best Way to Pay Off Debt: The Debt Snowball
If you’re juggling multiple credit cards that you owe money on and feeling overwhelmed, one way to manage them all is to consider creating a “debt snowball.”
With the debt snowball method, you aren’t adding to the length of your loans, increasing your interest rates, decreasing your motivation, borrowing against your future or your assets, or growing your debt—and you aren’t grabbing at a temporary fix that makes a bigger mess in the long run.
You’re making the changes you need to make with your money to finally get ahead. You’re focusing in on and paying off your debts, one at a time.
You’re building motivation to keep going.
You’re taking control of your income by kicking the debt payments to the curb. For. Good.
Now that you’ve got your budget set, it’s time to start paying off debt!
And the best way to do just that is with the debt snowball method.
It’s how you build momentum during the debt repayment process, and it reduces the number of monthly bills you need to pay as you go, because you’re paying off your debts in order from smallest to largest.
Yup, that’s right. Start with the lowest debt.
With this debt repayment method, you’ll make the minimum payments on all your largest debts, then funnel any extra money you have toward your smallest debt each month.
As the smallest debt gets paid off over time, the money that was going toward that debt is “snowballed” into paying off the next-smallest debt, and so on.
The debt snowball method can be advantageous since it helps people get rid of some of their smallest bills right away.
Okay, we know there are a lot of people out there who say you should pay off your largest debt or the one with the highest interest rate first.
That math makes sense on the surface—but if we were doing math, we wouldn’t have gone into debt in the first place.
Plus, paying off debt is about more than just the numbers. It’s about behavior change.
If you’re going to get rid of your debt once and for all, you need to see quick wins and feel like you’re making progress—that’s where the debt snowball comes in.
How the Debt Snowball Works
Remember the list of debts you wrote out? Put them in order from smallest to largest, ignoring the interest rates.
Make minimum payments on all debts—except for the smallest one.
Attack that one with all the extra money you can get. This includes the money you freed up when you were budgeting.
Once the smallest debt is gone, pack that payment (and the extra money) onto the next-smallest debt and pay it off.
Repeat until every single debt is gone.
Like a snowball rolling down a hill, the amount you’re paying on your debt grows in size and gains momentum with every debt you pay off.
Pay Off Debt Before Investing in Retirement
We’ll go ahead and hit you with the two big blockers in any debt-payoff journey. The first is trying to focus your energy on too many money goals at once.
And this happens most often when people want to chuck money into retirement and at their debt at the same time.
For one, this slows down progress. And it means you aren’t giving your full energy to your debt-payoff plan.
The thing is, your income is your greatest wealth-building tool. And your debt is stealing from you. Robbing from your future to pay your past. Get. It. Gone.
Attack it with a vengeance. Once it’s gone, save up a fully-funded emergency fund so debt will never be a temptation or an excuse ever again.
Then start saving for retirement. Trust me. This plan works.
Paying off your debt before you save for the future is your best option.
Once you’ve got your full income back in your control, you can really go after your investment goals.
Stop Using Debt
You’ll never climb out of a hole if don’t stop digging.
When you decide to pay off debt, that means you’re breaking up with debt. For good. No more same-as-cash scams.
No more financing fancy cars.
It does you no good to bust your butt paying off debt just so you can get back in debt.
Get out of the hole.
Breathe the fresh air of freedom.
And never go back.
Stop Using Credit Card
Credit cards are the second huge blocker to being debt-free.
Okay, you might be thinking that credit cards aren’t always debt, though, right? Because you always pay them off, right?
But listen, if you really want to get out of debt forever—why would you keep the option to go back to it right there in your wallet? Or saved in your Amazon account?
If you were trying to kick your sugar habit, would you keep a candy bar in your backpack? Debt is a habit too.
Remember, you’ve got to change your behavior to get out and stay out of debt.
And having quick options at hand that make it easier to slide back into your old ways is a bad idea.
Don’t just pay off your credit card debt. Get rid of the temptation.
Start living without credit cards. No more swiping the credit card.
Lower Your Expenses
In the second step to working the debt snowball method, I mentioned throwing all the extra money you can get at the smallest debt.
There are two great ways to rustle up that “extra money.”
The first is to lower your expenses.
This can look like lowering any budget lines you’re able to.
If you’re used to buying new clothes every month, lower that budget line to just the essentials—like new pants for the kid who keeps shooting up two inches.
Another way to lower expenses is to cut spending by taking some things out of your budget completely.
Be your own barista. Stop paying for the ad-free version of your music streaming service.
Start meal planning and quit restaurants. For now.
That’s the key. For now.
This is a season of giving up some things so you can gain something awesome—freedom from the suffocating weight of debt.
Increase Your Income
The other way you can get your hands on extra money is to increase your income.
Start a side hustle, work overtime, ask for a raise, switch jobs, freelance or sell stuff.
You know you’ve got things lying around the house you aren’t using anymore.
Is any of it worth cash? You might be surprised! You can declutter your life and get extra money to throw at your debt. That’s a win-win for sure.
And yes, all these suggestions take time and effort—but the more of them you use now, the quicker you can get out of debt!
Earning more money is another strategy that can help pay down debt faster, although this step is often easier said than done.
You may not be able to pick up more hours at work, or a raise may not be in the cards (though given recent inflationary trends, this is the year to ask for one).
But in many cases, the best way to earn more income involves picking up other types of work.
Perhaps you can work on a “side gig” in your spare time, become a part-time consultant in your field or apply for a second job on top of the one you have.
Whatever you do to boost your income, the key to maximizing your efforts is throwing all your extra cash toward your debts each month.
If you work extra hours and spend that money instead, you’re not going to get out of debt any faster.
But if you put the extra money into paying off debt, you’ll improve your debt-to-income ratio and make it easier to save money and qualify for the best financial products in the future.
Don’t Give Up
You might have a ton of reasons for why now isn’t the time to attack your debt. The thing is, there will always be reasons to put this off. So, don’t.
Also, when you get rolling, be ready for life to show up—random blockers that make it harder to stick to your plan.
But hear this: It’s still possible.
If something knocks you off the debt-payoff path, get up, get your footing, and get right back at it.
Don’t give up! You’re in control of this money goal.
Remind yourself of your why. What’s on the other side of this hard work that makes it worth it?
Paying off debt isn’t easy, but it is worth it in the long haul.
It takes focus and commitment, but nobody regrets the sacrifices they’ve made to become debt free.