Pay off debt fast! Everyone’s dream for all the right reasons. The process, however, appears to be more like everyone’s nightmare. If you are prone to pity parties, you will be allowed one more for yourself over the next five minutes. Once your time is up, we will kick the excuses out the door, roll up our sleeves and make our way along the “Pay off debt fast” journey! Ready, steady, go…
There are many reasons why people end up in debt. Some perfectly understandable, such as in the case of student loans and medical expenses. And then there is the “could have been avoided but went down the rabbit hole anyway” kind of debt. Credit cards, personal loans, … the list is endless. No matter what type of debt you have, odds are it is keeping you up at night.
Thankfully, there is a way out. Now, I am not going to sugar coat it. The process will require you to change your habits and … ouch … who wants to do that? Absolutely no one ever! Hence, you will need to realize that not only is your current financial situation not working for you. Most likely, it will also get worse. That thought alone should make you want to tackle your debt and make it disappear.
Instead of waving a magic wand (wouldn’t that be nice, if you have one, please share), we will deploy a few key steps instead that will get you to pay off debt fast and with the least amount of interest and fees paid in the process. All you have to do is commit to sticking to the steps we will develop today and most importantly not add to your existing balances.
Step 1: Know what you owe!
First and foremost, this rhymed by accident! Secondly, if you don’t know how much you owe and to whom, it will be impossible to tackle your debt. No brainer, right? Well, I’m the first one to admit that it is easier to hide from reality than face it head on. But that is not what we are doing here. Take a look at the table below and lay out your debt in this format. Don’t skip a category. They are all important!
Step 2: Pay off past due balances first!
Oh man, it will be so tempting to pay off the small balances first. Of course it would. One less debt is a huge accomplishment. I get it, but we won’t be doing that! Because it would cost you more interest and fees in the long run. If you are past due on certain balances, pay those first until you are current! In the meantime, make minimum payments on your other balances.
Step 3: Pay off high-interest rate balances next!
Once you are current on all your balances, it will once again be tempting to go back to the small balances. Minimizing the number of debt accounts, after all, is a great goal to have and we will get there. However, what you don’t want to do is pay off the 4% car loan while your credit cards accumulate 8-10% interest. You’d practically be throwing money out the window by continuing to pay more interest for those then on what you’re paying off. So pay off the 10% credit card off first, all while continuing to make minimum payments on all other accounts.
Step 4: Work yourself down the list!
Once you’ve followed these three steps, you should slowly but surely be working yourself down the list from past due balances to high-interest rate balances and past all remaining accounts in order of interest charged. Every time you pay off a balance, do a quick happy dance and right after promise yourself to never incur such debt again!
Step 5: Make more than the minimum payment!
Guess what … minimum payments are a carefully laid out ploy of banks to keep you in debt and have you paying interest for longer. Shocker, I know. The higher your balances, the more banks love you. No one wants that kind of love but we keep falling for it anyway. It’s like the date of horror that won’t end! A way to go home sooner is making double, triple, quadruple, … payments. Look at extra payments as your friend’s rescue call in case the date isn’t going well.
One last question that’s probably on your mind!
“Pay off debt fast you say! How on earth am I supposed to make all these payments?”
By changing your mindset and lifestyle. In order to get out of debt, you will have to be ready to track your expenses (you can use these templates). Next set a budget for your household. Last but not least, adjust your lifestyle by for example brown bagging your lunches to work. All to save your hard earned cash and turn it into debt paying potential!