So, you are wanting to be debt-free. It really isn’t as hard as everyone makes it out to be.
Yes, it takes some motivation and determination but, it is possible.
Is it super easy? No, but what in life that is worth having is?
You need to first determine why you want to be debt free. Once you figure out the why, the how to get rid of debt fast comes easier.
We were normal just like you. We had student loans, credit card debt, car payments, 401K loan, and owed the IRS. Once we decided we wanted to be free from all that, it was just a matter of figuring out how.
We were able to pay off $45,000 in just 17 months by using the debt snowball! If we can do it, so can you! Here are the tips and advice we used to do it!
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Now before we dive right into the tips for getting started, I want to answer some questions that I get asked a LOT about paying off debt.
Should I pay off my debt with my 401(k)?
Short answer, NO!
But here’s why…..
If you take a straight withdrawal the taxes and penalties are crazy high and I guarantee are higher than any interest rate you are currently paying.
Plus you are losing out on compound interest which is the best thing you can do for your future self. You are robbing your future for a “quick” fix.
Paying off debt is really about changing your behavior and this does not do that. It likely will even make it worse.
You may even be thinking, what if I do a 401(k) loan.
A 401(k) to pay off debt can be very tempting. It certainly was for us.
You are paying a low interest rate and you are paying yourself back, so it can’t be bad, right?
Well, ours cost us almost $1,000,000! Yes, I really meant that many zeros.
Here’s the quick story of how that happen.
We took out the loan to remodel our house which was $25,000. We were in our 20s and didn’t know the cons of this type of loan.
My husband lost his job shortly afterwards and we had 60 days to pay back $20,000! The money was spent and the breadwinner didn’t have any income.
We couldn’t pay it back in that time, so it counted as a withdrawal come tax time. It cost us almost $10,000 in taxes and hundreds of thousands of dollars in compound interest at retirement age.
Cons of taking out a 401(k) to pay off debt include:
- It keeps you tied to your job
- You lose compound interest, even if you pay it all back
- If you can’t pay it back it’s crazy high taxes and penalties
Just don’t do it!
Should I save money or pay off debt?
I get asked this question almost every day. Most people want to jump right in and start paying off things right away. Which is great!
However, we need to take one step at a time.
BEFORE you pay off debt, you need to save a little money because, well, life will happen.
You will get a flat tire, you will pay a bill twice or forget a bill, or your dog needs to go to the vet. It will happen. So, you need to plan for WHEN not IF that happens.
Save a minimum of $1000 before starting to pay off debt. A lot of times you may need to save more than that but it’s a great start.
I know you may not have saved a $1 in your life so even $1000 seems impossible but you can do this.
I want you to set a goal for yourself to do it as fast as possible and within 2 months. Yes, 2 months. It shouldn’t take you 6 months to do this.
Follow the tips listed here to speed up saving and my other money saving tips posts.
Should I take out a Loan to Pay Off Debt?
No! Paying off debt is about changing your habits and mindset around money. Taking out a loan to pay off another loan makes no sense and does nothing.
I do hear a lot that people “paid off debt” or were “debt free” because they took out a HELOC or 401(k) loan to pay off their credit card debt.
Guess what, all of those people are back in debt and it’s even worse than it was before. Now they have the loan they moved it all to AND the new debt.
Do yourself a favor and do the work to actually pay off your debt.
All you are doing by taking out another loan is moving it around. You literally did nothing by doing this. You think you did which means you aren’t creating new and better habits.
Just don’t do it.
How to Pay Off Debt Fast
Now we dive into the tips to pay off debt fast. By following these simple tips, you will be able to pay off debt quickly so you can reach your bigger financial goals.
1. Figure out your “Why”
First, figure out why you want to be debt free. Here are some of the reasons we wanted to be debt free.
It takes some sacrifice which is why your “why” needs to be a big one. I always think about getting rid of debt fast, like getting rid of weight fast.
You need to have the motivation to stick with it. You know what you need to do, but actually doing it is the hard part.
Getting rid of debt fast is like putting your budget on a diet. You know you should only eat so many calories but that dang chocolate cake just stares at you.
Then you start thinking “I’ll start tomorrow” or “I’ll start on Monday”. So, you really need to prepare yourself and keep reminding yourself why you want it.
It’s vital to change your mindset about money and debt if you want to be debt-free and stay that way. It’s so easy to get into debt but it takes work to get out of it.
If you don’t change your mindset about debt, you will end up back in debt within a short time if you do pay off your debt.
2. Make a Zero-Based Budget
This is really the most important step to paying off debt fast. Everything start with your budget.
Making a zero-based budget is the essential key to paying off debt fast. Making a zero-based budget is a little different in that it makes every dollar work toward your goals.
You list out your bills, expenses, and things you need to plan for in your budget. Once you have your budget together, every extra dollar goes to the debt snowball. Basically, whatever is left after paying and saving for what you need goes toward your debt.
There is no “extra” money left at the end of the month.
3. Use the Debt Snowball
The fastest and most motivating way to get rid of debt fast is to use the debt snowball. It is more effective psychologically than worrying about interest rates.
The debt snowball means that you put all extra money toward your debt with the lowest balance. Once you pay it off, you roll that payment and your extra money toward the next lowest debt.
Make a list of your debts with the balances from smallest to largest. You start with the smallest balance so you can get the “win”. Once you pay it off you will feel so good! It will help motivate you to keep going. By the time you get to the largest balance, you should have a pretty big snowball payment to help knock it out fast!
There are other methods of paying off debt but the debt snowball is the most effective at changing behavior.
You will have to change your behavior in order to get out of debt and stay out of debt.
4. Prioritize your spending
Making a budget and paying off debt is all about setting your priorities for your time and money. Life is all about what is important to you right now and where you spend your time and money shows what is important to you.
If paying off debt is important enough to you, you will find a way and do it.
This means cutting back on expenses, saving money, and find money where you can.
5. Sell everything!
Start selling everything you can so that you can get rid of the debt fast. Clutter causes anxiety so start selling everything!
This includes your car and any other big toys you may have that will cause your debt free date to be more than 2 years. Your goal should be to be debt free in 18-24 months by using the debt snowball. If this isn’t possible, then sell whatever is in your way.
Turn it into a game to see how much money you can make with stuff just laying around your house!
6. Savings Challenges
Another way to raise money fast is to do a money savings challenge. There are several different ones you can do to save money fast.
This is a fast way to not only save money but also reset your spending habits. It’s a great way to be more intentional with your spending and train yourself to stop impulse buying.
7. Have a Yard sale
You can make quite a bit of extra money by selling junk you don’t need or use anymore. Some people have made hundreds of dollars in a single weekend.
I’m sure that you have stuff you could try to sell to pay off your debt.
Take the effort to start decluttering and make some money from it!
When I was paying off debt, I sold everything!
I even sold my lamps and wall decor. If someone gave me money for it, I got rid of it!
8. Find ways to Stay motivated while Paying Off Debt
It is so important during this process that you stay motivated. If you don’t you will not stick with this journey.
Keep visuals, read other’s pay off stories, and stay focused on your priorities. I used to read debt pay off stories every night to keep me motivated. It is easier to stick with something when you know you are not the only one doing it.
Paying off debt can be lonely when you are the only one in your circle doing it. So, join Facebook groups, read blogs, and stay connected with others paying off debt too!
For more motivational stories check out:
9. Make Visuals of Your Progress
Once you figure out what your motivation is, make a visual of it. You can make visuals of your reason why and of your process.
I colored in a thermometer as we paid off debt. Keep these in a place that you will see it everyday. You can even put smaller ones in places like your wallet so when you are tempted you will be reminded of your goals.
You can make a vision board with your dreams on it to remind you of your “why”.
10. Have a Support System
It can be very lonely and even discouraging when you feel like you are the only one paying off debt and saying no to things.
A lot of times, our friends and family aren’t supportive either.
It’s important to find link-minded people that are going through the same thing and can help support you to stay on track.
One way to find someone is by joining the Budgets Made Easy Membership Community. It’s a supportive, non-judgmental group that is all about paying off debt and managing our money well. We even do Live Q&A Coaching Sessions to help you make your plan that is specific for you.
Other ways to find a support system include Facebook groups, Instagram hashtags or seeking guidance from someone in your church or circle that is where you want to be. You want to find someone that is doing what you want to be doing to help coach you.
Should I Pay Off Debt or Invest?
This is a great question and really it depends. I know Dave Ramsey wants you to stop investing while you pay off debt.
However, I am hesitant to recommend it UNLESS you are intense about paying off debt. If you know you will pay off the debt with the money then do it. It will spend up the process.
If you quit investing but spend the money on other things, then don’t do it. I would rather you keep investing than spend the money.
Remember that you do not want to be out of the market for very long. If you it will take you more than 2 years or so to pay off debt, do not stop investing.
It will really take running the actual numbers to see if it’s worth it in your situation.
When we were paying off debt, I did not initially shut off our investments. When we were halfway through, I saw how much faster we could do it if we did quit contributing to retirement so we did.
Other things to consider are your age, income, and long-term goals. The younger you are, the more compound interest you can earn. So, it incredibly important to invest when you are young. But if you graduated with $70,000 in student loan debt, investing may not be your best option.
If you want to retire in the next 5 years, you need to focus on paying off debt.
You do not want to go into retirement with poor money management and a mountain of debt. You also don’t have much time to earn interest so, debt is more important.
What is the best debt pay off calculator?
There are several that I like but I list my favorite debt snowball calculators here. The important thing is to use a debt calculator to determine how fast you can get out of debt.
Once you see it and make changes to it to make it even faster, it really helps motivate you.
When you can visually see that making a small change, like taking your lunch to work, can pay off your debt 4 months faster, it’s hard to keep eating out every day.
How to pay off debt fast with a low income?
It will be harder and slower to pay off debt with a low income BUT it is doable. I shared Amanda and Jonathan’s story about how they paid off almost $25,000 in 7 months making $35,000 a year!
You can do it. It will take some creative ways to make extra money. They sold furniture and items they found in dumpsters. They even sold their lamps and other home decor.
It will take a change but if you keep doing what you are doing, nothing will change.
When you have a low income, you will have to really be intentional with your spending and budget.
Start with your budget and see what you have leftover. Then find ways to cut costs and spending. Then work your way to selling things and making extra money.
Should I consolidate my debt?
NO! This will only prolong the process and honestly, you will only be costing yourself more money in the long run.
Debt consolidation does nothing for changing your behavior and more than likely you will just keep adding debt. You will likely be in more debt in 5 years from now than you are right now.
If you do the debt snowball and follow the process, you do not need to consolidate your debt.
Should I just file bankruptcy?
NO! Just like consolidating won’t change you behavior, neither will a bankruptcy. I will say that there are very rare cases where a bankruptcy makes sense. However, that is not the case for most families.
It will ruin your credit, not change your behavior, and you will likely be in debt again in 5 years.
You also can not bankrupt all debt and depending on your situation, you may still have to pay back the debt anyway.
It will be faster to make a budget and use the debt snowball to pay it off as fast as you can.
Do you have any paying off debt success stories?
Yes! I LOVE sharing success stories and I have shared a ton!
Take a look at Ashish and his wife who paid off $130,000 in less than 2 years. Or Stephanie and her husband who paid off $70,000 in 12 months. Or even my story about how my husband and I paid off $45,000 in 17 months.
Single? I also shared how Sadie, a single mom on a low income paid off $25,000 in 14 months.
Paying off debt shouldn’t be a life long struggle. Do it fast and suffer now so you can enjoy your money. Think about all the things you can do once you get to keep your income. This helped us get through it. It’s only temporary.
Take it one day at a time. Tell yourself, I can quit tomorrow but today I will keep going. Once you tell yourself that every day, you will be debt-free before you know it.
Let me know how much debt you have to pay off in the comments. Trust me you are not alone. Debt is a “normal” part of our society. Let’s be weird together and have financial FREEDOM!!!