Debt is a common fact in American life, and so is the desire to pay it off faster.
Paying off debt can feel like a daunting challenge, but with a systematic process in place and the right tools at your disposal, you could be free from debt sooner than you expect—even with a low income.
“The key is finding a method you can stick with,” says Matt Lattman, vice president of Discover® Personal Loans. “Seeing continued progress and reviewing your situation on a regular basis is the best thing you can do to stay on the path toward financial health.”
If your income has suffered recently, or your money just doesn’t stretch the way it used to now that interest rates are higher, you can still shorten the time it takes to pay off your debt.
Want to know the best ways to pay off debt fast? Check out the six tips below.
1. Assess your personal finances
First, get a full picture of what you owe. Gather all your financial statements (credit cards, car loan, medical bills, etc.) and make a list for each balance that includes the following information:
- How much you owe
- The amount of interest you’re paying
- Your annual percentage rate (APR)
- Your minimum monthly payments
Once you know the scope of your debt, you can set some attainable goals. “As you think about different debt management strategies, the first and most important thing to do is sit down and make a plan,” says Lattman.
For example, you could work toward saving more for retirement within a few years. Or you could strive to reduce your credit card debt.
“As you think about different debt management strategies, the first and most important thing to do is sit down and make a plan,”– Matt Lattman
2. Trim the fat in your budget
Sometimes drastic reductions are in order, at least for a time. The goal is to cut back on any optional expenses—like restaurants, streaming subscriptions, impulse buys, and possibly car ownership.
First, create a detailed budget and commit to tracking everything you spend, so you can see exactly how much you need to pay basic expenses. Living within your means is essential, and it’s much easier to do when you know exactly where your money is going.
Then, see what you can do to automate your finances, either through your online banking portal or by calling your bank. When you schedule automatic bill payments and automatic transfers into savings, it’s much easier to stay on top of your financial goals. Not seeing that money in your checking account will keep you from spending it on other things. And there might even be a savings account that will pay you more in interest than you’re getting now.
3. Pay more than the minimum on credit card debt
Credit cards can be a useful financial tool, especially when they offer cashback rewards. Just make sure you use them wisely. That means paying off the balance in full every month before the due date if you can—so you can avoid interest charges and penalties.
If that’s out of reach right now, be sure to pay at least the minimum amount on all your balances every month. And anytime you can pay more than the minimum, do it. You’ll reduce the total amount you pay in interest.
In fact, once you’ve trimmed your expenses and automated savings, it’s crucial that you put any extra funds in your budget toward your remaining debt. The debt avalanche method is the most cost-effective way to do that because you pay down your most expensive debt first. But some prefer the snowball method, where you pay the smallest balances first.
Either way, the fastest way to pay off debt is to avoid accruing any new revolving debt or missing payments, which could harm your credit and lead to more debt.
4. Start a side hustle that works
Generating more income to increase debt payments might work, too. Maybe you could start a side hustle, switch jobs, or freelance.
If you need help figuring out where to start, try making a list of everything you do well. Then brainstorm about the kind of customer or client who could benefit from those skills. Your personal and professional network could help you focus on a potential target, so don’t hesitate to include them in the process.
You could also think about selling items you don’t need anymore, either online or at a garage sale. If you have things you’re willing to part with, and you’re open to discount pricing, you could come into some cash without too much effort.
5. Find the best way to pay off debt
If you’re feeling overwhelmed by your debt and can’t see the light at the end of the tunnel, making minimum payments might not be enough. Instead, why not weigh these different ways to pay off debt and gain some peace of mind?
- A personal loan for debt consolidation has a fixed interest rate and a defined repayment term, so you’ll know exactly when you’ll be debt-free. And, depending on how much you pay above the minimum on your loan, a personal loan could help you pay off debt faster and save money on interest.
- A 401(k) loan. Some employers will allow you to borrow money from your 401(k) retirement plan. There can be drawbacks like missing out on gains or losing an employer match; be sure to weigh the pros and cons carefully. Of course, each person’s financial situation is unique; always contact your financial advisor for guidance.
- Talk to a credit counselor who can assess your financial situation, help you explore debt settlement or debt consolidation while unemployed, or suggest ways to pay off debt faster, even with a low income. The first discussion should be free, so you have nothing to lose from an initial meeting. There are organizations, like the Consumer Protection Financial Bureau that can help you find an accredited credit counseling agency
Don’t do it alone
It can be difficult to talk openly about issues related to money. But it may help to ask a close friend or family member to be your accountability partner in your debt payoff plan. Having someone to check with regularly may encourage consistency. And your accountability partner will also be a source of moral support.
So, make your debt relief a community effort. A friendly conversation with your accountability partner could be just the encouragement you need to move on to your next financial goal. And don’t forget to celebrate as you reach your goals.
Paying off debt isn’t easy. But if you stick with it, you may find you can make a lot of progress in a short amount of time.
Check out our debt consolidation calculator to see what you could save when you consolidate higher-interest debt with a loan from Discover.Estimate Savings