Are you ready to get out of debt for good?
Getting out of debt is easier said than done. You can’t just wing it. If you’ve struggled to pay off debt in the past, then you’re in the right place. You can do this. You just need a concrete plan in place to pay off your debt.
Here’s a 7-step guide to paying off your credit card debt as fast as possible.
P.S. Today’s post is all about paying off credit card debt, but these steps can also apply to student loans, auto loans, etc.
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1. Determine which debt you should pay off first
First things first, write down all the debt you have and what kind of debt it is. Then, find the interest rates for each credit card and/or loan. You can find the interest rate on monthly paper or e-statements.
Examples of different kinds of debt: credit card, auto loan, student loans, etc.
1) Calculate all of your debt and get the total number.
2) Decide in what order you want to pay off your debt. This is important.
There are 2 different debt payment strategies: the avalanche method and the snowball method.
The avalanche method works by you paying off your highest interest rate debt first and going in that order.
The snowball method works by paying off the credit card with the smallest balance and working your way up from there.
The avalanche method is the smartest way to save the most money since you’re paying off high-interest rate debt, but the snowball method keeps you motivated and inspired to keep paying off debt.
2. Negotiate your credit card interest rate
First off, do you know your credit card interest rate? Let’s just start there. You can find your current interest rate on a credit card statement.
Credit card interest rates are usually incredibly high, around 20%. Lowering the interest rate can potentially save you hundreds if not thousands of dollars depending on how much credit card debt you have.
This is such an important step that you can’t miss. Read the article above and follow the script. If it doesn’t work the first time, try again in a couple of months.
3. Create a budget
I know I know, budgeting isn’t sexy and it sounds cumbersome, but it’s totally worth it. I highly recommend creating a budget because you’ll have a rough idea of what your spending looks like month to month.
It took me a few months to get in tune with my budget, so don’t be hard on yourself if your budget and spending aren’t perfect at first. Once you get in tune with your budget, your spending will match that and you won’t need to check in with your budget as much if you’d like.
Here are a few ways to budget:
- Budgeting planner
- Cash envelope system
- Budget printable
- Excel sheet (create your own)
- Budgeting app (Mint, YNAB, EveryDollar)
Your budget will show you: 1) how much you spend each month on living expenses (living expenses are what you need to spend in order to live, ex. mortgage/rent, electricity, insurance, phone, internet, groceries, etc.) 2) how much leftover money you have after living expenses.
Now that you know how much money you have leftover after living expenses, you have a specific number that you can use for “fun spending’, debt, and saving.
I personally do not recommend leaving out a fun category in your budget. When you don’t set aside any money for fun spending like restaurant outings, shopping, etc., you burn out. Remember, we’re creating a debt pay off journey for the long haul that will actually work. Set aside $50+ for fun spending (or whatever feels right to you).
4. Save money & lower monthly expenses
Now that you have a budget in place, it’s time to save money and lower monthly expenses so you can throw more money into your debt.
Some of my favorite ways to save money are 1) Use Ebates to get cashback on most online purchases 2) Use Ibotta to get cashback at the grocery store 3) Use Honey to get the best coupon codes for every online purchase you make (so you get the item for the lowest price) 4) Use Trim to lower your monthly bills like cable, internet, phone, medical, etc. 5) Switch your cell phone to Tello Mobile and save hundreds annually (I used it myself and it uses the same cell phone towers as Sprint and 4G) 6) Use $5 Meal Plan to save money on food.
Related: 50 Ways To Save Money Every Month
5. Make more money
There’s only so much money you can put into your debt, which is why the next step is to find ways to earn more money. There are so many ways to earn extra money including 1) filling out surveys 2) freelance writing 3) starting an Etsy shop 4) working from home as an English teacher to kids in China 5) starting a blog 6) Pinterest virtual assistant 7) finding a remote job on FlexJobs 8) proofreading from home.
Earning extra income and creating multiple revenue streams is smart. You learn new skills, increase confidence, and in case you ever lose a job, you have several income streams coming in.
Related: How To Make $500 Fast
6. Put any extra money toward debt
Now that we’ve covered the basics, it’s time to move on to whenever you receive any money you didn’t expect.
This includes tax returns, work bonuses, cash gifts, and even stimulus checks. Any time you receive extra money, be very intentional. This is a great time to throw all the money to your debt so you can reach your goal faster.
You didn’t expect this extra money to come in, so treat it that way. Think of “surprise money” as a gift that is going to get you that much closer to financial freedom.
7. Learn for the future
Once you’ve paid off your credit card debt, it’s time to soak it all in. You’ve made incredible progress on your financial journey and you’re achieved massive goals.
Now you can work on future money goals such as:
- Contributing to a 401(k) and/or IRA
- Start a business
- Save up for a car to buy in cash
- Increase your credit score to 750+
- Save for a vacation in cash
- Take care of your health (to lower your chance of medical bills)
- Creating a beefy emergency fund
Money is really fun even if it doesn’t seem like it right now. I love money and have a great relationship with it, but it wasn’t always that way. Don’t be hard on yourself. You’re on a money journey.
Is there anything such as “good debt”?
This is a question that only you can answer. Did you decide to go to school to get a career in a demanding field? Some may look at that as good debt. Did you decide to purchase a vacation to Disney on your credit card with no plan on paying it off? Some may look at that as bad debt.
Whether you have good or bad debt, it doesn’t really matter. At this point, your goal should be to pay it off.
Alex has $10,000 on his credit card with a 20% interest rate. Alex also has $10,000 in student loans with a 6% interest rate. It may be smart for him to make his usual minimum payments on both, and put any extra money to his high-interest credit card since the credit card is accruing a lot of interest compared to his student loans.
Joann has $5,000 on her credit card with an interest rate at 20% and $2,000 on her credit card with an interest rate of 10%. If she wants to do the avalanche method she would pay minimums on both credit cards and put any extra money to her $5,000 credit card. If she wants to use the snowball method, she would pay minimums on both credit cards and put any extra money to her $2,000 credit card.
Debt can feel overwhelming and stressful, but the key is to treat it as a journey and not something that needs to be finished by tomorrow. Look at your debt as a meaningful lesson that possibly improved your life. My student loan debt pushed me into starting my own business and making a full-time career out of it. Try your best to see the positives in it all or as life lessons.
You will be debt-free one day and it will be amazing. Hundreds of thousands of people have become debt-free, why not you too? You can do this.
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Are you paying off debt? How’s it going so far?
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