How to Pay Off Debt Fast: 5 Strategies

Paying off debt often comes down to leveraging your current resources. If you have a steady income and gainful employment, you probably have options. If you own a home, you may have more. And if you still have good credit, count your lucky stars because you're in the best position to pay off debt fast. The most effective way to pay off debt is to take a multi-pronged approach. We'll start with the heavy-hitter strategies first, then follow up with the good habits you'll need to not just pay off your debt, but to stay out of debt too. 

1. Determine what you can pay each month

The first step is to assess your debt situation and figure out how much you can afford to put toward monthly payments.

• List all your debts: Get into the details — for each debt you carry, note exact balances, interest rates, minimum payments, and your monthly payment if it differs from the minimum. Then, add up the totals. How much do you owe overall, what is your total minimum monthly payment? You may even want to section your sheet by types of debt and average the interest rates you're paying for each. For example, what's the average interest rate you're paying on your credit cards?
• List all your other payment obligations: For this step, look at your bank and credit card statements to see what you're spending on rent, car payments, utilities, cell phone bills, gas, food, medicines, etc. This list should include the items you “can't live without.” Add up these expenses for a monthly total.
• Determine how much money you have left: Subtract all your necessary monthly expenses (#1 and #2, above) from your monthly income after taxes. If you have very little (or no) income left over, that's ok. The total you got in the first step indicates about how much you can spend monthly on debt. If you're in the red — meaning you're spending more than you're bringing in — subtract that amount from your monthly debt total (#1). The new amount is how much you can afford to spend each month on debt.

2. Consolidate your debt

It's quite possible that the interest you're paying on your current debt is higher than it needs to be. If you can lower the interest rate, you can lower your debt payments or speed up debt payoff. Consolidating your debt can be a very effective way to do this. Essentially, debt consolidation means taking out a single loan to pay off all of your existing debt, usually at a lower interest rate.

There are many different debt instruments you can use to consolidate, including a personal loan, home equity loan, and balance-transfer credit card. Here's an example of how debt consolidation works.

Let’s say you have two credit cards, each with a $4,000 balance ($8,000 total), a combined monthly payment of $350, and an average interest rate of 25.47%. If you qualify for a three-year personal loan for $8,000 at an 11% interest rate, your monthly payment would be roughly $262. Not only would this reduce your monthly payment by $88, but you'd save over $1,600 in interest by the time you'd pay if off in three years. 

Another upside to debt consolidation is that it can be a quick way to improve your credit score. Once you pay off existing credit card debt, for example, you reduce your credit utilization, which is a ratio of how much credit you're using to how much you have available. It contributes 30% to your credit score. 

You're most likely to qualify for the best rates if you have a great credit score. But that doesn't mean debt consolidation won't work if you don't. See what types of rates you might get by prequalifying with multiple lenders. Then, compare those rates to what you're currently paying. Note that prequalification is not an offer of credit and it doesn't hurt your credit score. Once you apply for a loan, your score may temporarily drop by a few points. 

To improve your rate, consider applying with a cosigner with a great credit score or securing the loan with collateral.

3. Build a better budget

If you don’t already have a budget, this is a great time to make one (and if you already made a list of your debts and monthly expenses, you have a head start). A budget is simply a way to track your income and your expenses to give you more clarity and control over your spending.

There are many ways to make a budget, from basic to complex. You can print off and fill out a downloadable budget sheet online, or you can use a simple Excel spreadsheet or Google Doc. There are also budgeting apps out there, with Mint and You Need A Budget being popular examples.

There’s nothing wrong with trying different methods and finding what works for you. Ideally, you’ll end up with a way to track your income and spending that can give you insight into how to better manage your money. That insight is crucial when you’re trying to pay off debt quickly, because you’ll want to seek out ways to cut your expenses and direct that money to your debt payments instead.

So, identify expenses you can cut. Here are some ideas to get you started:

• Find cheaper solutions: If you find that you have a few expensive hobbies or habits, consider if you can simplify or downgrade to something more affordable. For example, if you have a pricey gym subscription, consider canceling it and opting for home workouts instead. If you go to the movies regularly, consider limiting your budget and watching streaming services at home.
• Cut unused subscriptions: It’s easy to sign up for a subscription and then forget to cancel it. Take a look at your bank account statement for the last month and mark every subscription fee that came through. Evaluate whether or not you really use each subscription enough to justify the cost — and, if not, cut it.
• Eat in: Going out can add up fast. Make a habit of meal planning, grocery shopping, and eating at home to lower your costs. Offer to host friends for a potluck where everyone brings a food item for a low-cost alternative to going out for dinner. Making coffee at home instead of going to a cafe can also save you money.
• Take advantage of free or low-cost services: If you’re a big reader, join your local library rather than paying for books out of your pocket. If you live in a city with public transit, take advantage of it, or use a ride-share service. Look into what’s available in your area that can help.

4. Use debt payoff strategies

When you’re paying off debt, there’s more than one way you can go about it. Here are some debt repayment strategies and how they work.

• Debt avalanche method: This strategy focuses on paying off your debt with the highest interest rate first. Continue making the minimum monthly payment on your other debts, but direct any extra money toward your debt with the highest interest rate. This method can save you interest in the long term, but it can take awhile to see any progress.
• Debt snowball method: If you prefer to see progress sooner, the snowball method focuses on paying down your debt with the smallest balance first and applying that minimum payment onto the next debt’s minimum payment, thereby creating a “snowball”. By paying off your smallest debts faster, you can get an early win and simplify your debt repayment plan. This can also give you motivation to continue to stick to your debt repayment plan going forward.
• Use a balance transfer card with 0% APR: Balance transfer cards generally have a low or 0% introductory interest rate for a certain period of time, such as 15-18 months. These cards will charge you a fee (typically 3% to 5%) to move all of your debt onto this credit card. This can help you pay off your debt faster, since no interest will accrue on your balance during this time. However, make sure to pay off your debt by the end of the promotional period, as any remaining balance will be charged at the standard APR.
• Negotiate debt: If you are unable to make your monthly payments, consider contacting your creditors to negotiate. Reach out to them with a realistic repayment or settlement plan and explain your situation. While they may turn you down, it’s worth asking to see if they may accept your plan or meet you halfway with a lower interest rate, reduced fees, or a lower monthly payment.

5. Increase your income

While easier said than done, you might want to do some research and see if there are better-paying full-time jobs you think you can apply to. In the meantime, finding a part-time or freelance job might be a quicker solution to increase your income.

There are plenty of ways to make extra money with a side hustle these days. Find one that works for you. Driving for a ride-hailing app or working as a shopper or delivery person are always options, but do research and make sure that these gigs are actually worth the time, gas money, and wear and tear to your vehicle before you jump in.

You could also consider going through your belongings to see if there’s anything you could sell. Apps like Poshmark or Depop make it easy to sell clothes and other fashion-related items, while you can list other things, such as children’s toys, old furniture, or sports memorabilia on Facebook Marketplace, Craigslist, or eBay.

If you have an open or unused room in your home, you could rent it out and put that money toward your debt. Whether that means taking in a roommate or listing the room on a site like Airbnb, you could turn that extra space into additional income.

FAQ

Should I focus on paying off credit card debt or student loans first?

It depends, but it’s often wise to pay off the debt with the highest interest rate first to save yourself money. If your credit card debt has a high variable rate and your student loans have a low fixed rate, it’s likely wise to focus on paying off your credit card debt first.

How can I avoid using credit cards while paying off debt?

Find a budgeting strategy that works for you and stick to it — often seeing your spending in black and white is a good motivator to not continue racking up debt. If you still can’t control your spending, consider working with a financial adviser. You can also freeze your cards, but make sure you’ve removed them as payment options from online vendors.

How can I avoid falling back into debt once I've paid it off?

Getting and staying out of debt requires learning to live within your means and breaking bad financial habits. Consider closing your credit cards if you find not using them impossible, but it may be better to address the underlying issues that cause you to live on borrowed money. Lifestyle changes can be helpful if you’re consistently living outside of your means.

Are there any government programs or resources available to help with debt repayment?

While the U.S. doesn’t have an all-purpose debt management department, the Consumer Financial Protection Bureau offers a variety of educational resources, including information on what debt collectors are legally allowed to do, what to do if you can’t pay your credit card bills, and a guide to student loan repayment. Research what nonprofit programs are available in your area that may offer additional help.

What are some alternative payment methods to credit cards?

You can use a debit card, cash, or some online payment methods such as PayPal or Apple Pay in lieu of a credit card. Instead of using debt to pay for things, these will allow you to use the money from your bank account.