Your Ultimate Guide to Financial Freedom
Depending on how much you have and how comfortable you are with it, debt can feel like that annoying pebble in your shoe—small, but persistent— or like you’re climbing a mountain but the top just seems to get farther and farther away. But don’t worry! With the right strategies and mindset, you can conquer any amount of debt. Whether you’re dealing with student loans, credit card debt, or a mortgage that seems to stretch into infinity, this guide will walk you through practical steps to pay off debt quickly so you can get out of the red and into the green.
And if you need to start by laying all of your cards on the table – and by that I mean your debt – you can use this free Spending, Savings and Debt Tracker to get organized and start working toward paying off your debt quickly.
Let’s dive in!
Your Debt Mindset
Before we dive into the different types of debt, let’s talk about your debt mindset so you can confidently pay off what you owe.
The first thing I want to remind you is that when it comes to debt, debt is not bad. It’s actually neutral. Think about the mortgage that helped you buy the house where you’ve made so many memories. Or the student loans that got you the degree where you met your best friend and ultimately allowed you to get the job that currently pays your bills.
It’s okay that it took debt to get those things and it’s also okay that we now have to pay off that debt that gave us our current lifestyle.
Which brings us to how we should feel about debt going forward… This often brings up the question of credit card debt. See it’s not really about the debt itself—debt is neutral—but we should make sure that our debt, like our spending, aligns with our goals and priorities. We don’t want to go into debt for just anything!
And with that let’s dive into the different types of debt and how you can start paying it off quickly.
Credit Card Debt
Ah, credit cards—the double-edged sword of the financial world. They’re convenient and build your credit, but they can also lead to some serious debt if not managed properly.
If you’re in the credit card debt hole, here’s how to start digging yourself out.
1. Stop Adding to the Balance
This might sound like a no-brainer, but the first step in paying off credit card debt is to stop using your credit cards. Put them away, freeze them (it’s a simple tap inside your account!), and remove them from online shopping sites. The key is to avoid adding more debt while you’re trying to pay it off.
2. Pay More Than the Minimum
Minimum payments are a trap. They keep you in debt longer and cost you more in interest over time. Always aim to pay more than the minimum payment each month. If possible, double or triple the minimum payment. This strategy will help you pay off the debt faster and reduce the total interest you pay.
3. Transfer Your Balance
If your credit card debt has a high interest rate, consider transferring the balance to a card with a lower rate or a 0% introductory APR. There are special balance transfer cards you can look into if this feels like the right option for you. This move can save you a lot on interest, but be sure to pay off the balance before the promotional period ends to avoid hefty fees.
4. Use Windfalls Wisely
Got a tax refund, bonus, or any unexpected cash? Use it to pay off your credit card debt. While it might be tempting to splurge, the relief of having less debt will be far more satisfying.
Now despite the vibe here, which is very much don’t use credit cards – and I stand by that if you’re trying to pay off debt quickly – I don’t think credit cards are a bad thing. They can actually be a very helpful financial tool to build your credit but only if you can pay off the balance each month.
Paying Off Mortgage
A mortgage is often the biggest debt people carry, and paying it off before retirement can feel like an impossible dream. But with the right approach, you can make it happen sooner than you think.
1. Make Extra Payments
One of the simplest ways to pay off your mortgage faster is by making extra payments. Even one extra payment a year can shave years off your mortgage term. You can also divide your monthly payment in half and pay every two weeks. This method results in 26 half-payments—or 13 full payments—a year, which can speed up your payoff process.
2. Refinance Your Mortgage
Refinancing your mortgage to a lower interest rate or a shorter term can save you thousands of dollars and help you pay off your mortgage faster. However, make sure to consider any changes in payments or additional fees associated with refinancing.
3. Put Bonuses and Raises Toward Your Mortgage
When you receive a raise or bonus, consider putting some or all of that extra money toward your mortgage. Depending on your interest rate and how much stress and anxiety your mortgage is causing you may want to prioritize paying it off.
4. Downsize or Rent Out Part of Your Home
If you’re serious about paying off your mortgage quickly, consider downsizing to a smaller, more affordable home or renting out a room to bring in extra income. This strategy might not be for everyone, but it can definitely accelerate your debt payoff.
Every little bit helps reduce the principal balance of your mortgage, saving you on interest in the long run.
Student Loans
Student loans can sometimes cause the most discomfort, especially when they’re hanging over you for decades and you’re not using the degree you have at work. But don’t worry—there are ways to break free.
1. Know Your Loan Details
The first step in tackling student loan debt is understanding what you owe. Know your loan’s interest rates, terms, and repayment options. This knowledge will help you make informed decisions about how to pay off your debt.
2. Enroll in an Income-Driven Repayment Plan
If your income is low compared to your student loan debt, consider enrolling in an income-driven repayment plan. These plans cap your monthly payments at a percentage of your income, making them more affordable. Plus, after 20 or 25 years of qualifying payments, any remaining debt may be forgiven.
3. Refinance Your Student Loans
If you have a stable income and good credit, refinancing your student loans can lower your interest rate and save you money over time. However, be cautious—refinancing federal loans into private loans means you lose access to federal protections and repayment options. So do your research for your specific circumstances before you make a decision here.
4. Apply for Loan Forgiveness Programs
Depending on your career, you might qualify for student loan forgiveness programs. For example, public service workers, teachers, and some healthcare professionals may be eligible for loan forgiveness after a certain number of qualifying payments. Or if you’re not in a qualifying profession, your company may offer some loan repayment assistance – it doesn’t hurt to check!
How to Pay Off Debt Quickly on a Low Income
Now let’s talk about getting out of debt on a low income. If you’re working with a tight budget, paying off debt quickly might seem like a Herculean task. But remember, even Hercules had a strategy!
1. Plan Like a Boss
You don’t need a massive income to pay off debt quickly—you just need a solid plan. Insert your money plan – don’t have one yet, head over to my article on creating your money plan. Start by listing all your monthly expenses and see where you can trim the fat. Cancel those subscriptions you never use, cook at home more often, and take advantage of sales and discounts. Every dollar saved is a dollar that can go toward your debt.
2. Prioritize Your Debts
If you have multiple debts, prioritize paying off your highest interest rate debt first to save you money in the long run. If you have more than one debt with the same high interest rate, prioritize the debt with the highest interest rate and the highest balance. Then keep going until you’ve worked your way through all your debt!
3. Increase Your Income
This might sound obvious, but earning a bit more can make a huge difference. Look for side gigs that fit into your schedule, such as freelancing, tutoring, or even selling items you no longer need. Then every extra dollar you earn goes directly toward paying down your debt. For more ideas on how to increase your income, head on over to my article on balancing your income and expenses.
4. Negotiate Your Bills
Did you know you can negotiate your bills? Call your service providers—whether it’s your internet company, phone carrier, or even medical providers—and ask if they have any discounts, lower payment options, or forgiveness programs. It never hurts to ask!
Pros and Cons of Debt Settlement
Debt settlement might sound like an appealing option, especially if you’re drowning in debt, but it’s important to understand both the pros and cons before jumping in with both feet.
Pros of Debt Settlement
- Reduce Your Debt: Debt settlement allows you to pay less than what you owe, which can significantly reduce your debt burden.
- Avoid Bankruptcy: For some, debt settlement is a preferable alternative to bankruptcy, which has long-lasting effects on your credit.
- End Collection Calls: Settling your debt can stop those annoying collection calls and give you peace of mind.
Cons of Debt Settlement
- Damage to Your Credit: Debt settlement can seriously damage your credit score, as it involves not paying your debts in full. This damage can take years to repair.
- Fees and Taxes: Debt settlement companies charge fees for their services, and you may also owe taxes on the forgiven debt.
- No Guaranteed Success: There’s no guarantee that your creditors will agree to settle your debt, which means you could end up in the same situation but with added fees.
So make sure you review your options and think about the best path for your situation before you make a decision about how to pay off your debt.
Final Thoughts To Pay Off Debt Quickly
Paying off debt isn’t just about the numbers—it’s about taking control of your financial future. Whether you’re tackling credit card debt, student loans, or a mortgage, the key is to stay focused, stay disciplined, and celebrate each victory along the way.
Remember, every step you take to pay off debt quickly is a step closer to the financial freedom you deserve. So once you’ve created a debt pay off plan, stay committed to your debt payoff strategy and money goals.
You’ve got this!