If your like the average American.
You have debt. Lot’s of it.
According to Nerd Wallet the average American has $16,000 in credit card debt and $49,000 in student loan debt.
We asked the experts to give consumers their top tips to paying off debt as quickly as possible.
If you’re wondering how to get out of debt.
We encourage you to read all 14 tips to paying off your debt and implement the strategies into your debt repayment plan.
RATE SEARCH: Check Refinance Rates
1. Determine if You Can Pay Off Debt on Your Own
Sean Fox, Co-President, Freedom Financial Network
“Figure out a fixed monthly amount you can pay toward your debt until you’ve paid off all debt. This amount should be more than the combined minimum payments on all credit cards and required payments on personal loans. Then select either the avalanche or snowball method to eliminate debt.
In doing so, however, keep in mind the terms of the personal loan, if you have one. These loans typically have terms of 36 or 60 months, with strict monthly payments and time lines. You must work those terms into your snowball or avalanche strategy.”
2. Get Your Side-Hustle On
Kristin McGrath, Editor, Credit Card Forum
“Side-hustles in the sharing economy are huge for those who need a boost in paying off their debt. Rent out a room, drive for a ride-share or even get a more traditional part-time job. Then apply 100 percent of those earnings toward your debt.
It may help to have those side-hustle earnings deposited into an entirely separate checking account so that, every month, you can use what you’ve accumulated to make an extra debt payment. Shred whatever debit card comes with that account so you won’t be tempted to spend that extra money on other things.”
3. Establish an Emergency Fund
Rob Drury, Executive Director, Christian Financial Advisors
“You should have sufficient saving to ensure that a sudden employment lapse, medical need, or unexpected financial expense doesn’t result in a financial meltdown or greater debt. Three to six months of household income is typically sufficient. Once this is established, it is time to attack debt with a vengeance.
First of all, debt elimination should be treated as a regular monthly expense within one’s budget. Some advisors recommend paying minimum payments on all debts except the one with the lowest balance, to which one applies all of the remaining monthly budgeted amount.
Once that account is paid off, move on to the next smallest, and so on. This is so that one is motivated by the rapid initial progress, making it easier to maintain that momentum. Others suggest concentrating on the highest interest rate account because this makes a greater mathematical impact.
Bottom line: Do whichever works and feels the best, and don’t quit until the debt is gone!”
4. Combine and Refinance your Student Loan Debts
Michael Banks, Founder, FortunateInvestor.com
“Like with a mortgage or car loan, student loan debt can be refinanced. It doesn’t help everybody, and it pays to be wary of predatory interest rates, but by combining multiple student loans into one and refinancing you can get lower rates and pay off debt faster. SoFi, lendEDU and Student Loan Hero are all good options for graduates looking to refinance.”
5. Fully Commit to the Process
Jen Smith, Blogger, Saving with Spunk
I like Dave Ramsey’s saying “You can wander into debt but you can’t wander out. What helped us get out of debt was a lot of sacrifice and not making excuses as to why we couldn’t do it. We had to fully commit.
Determine Your Why. Paying off debt is going to be nearly impossible if you don’t know why you’re doing it. We want to be debt free for job flexibility. We want to become foster parents and it’s a lot easier to do that with job flexibility. That’s our “Why.””
6. Lower Your Interest Rates
Randall Yates, Founder and CEO, The Lenders Network
“High interest rates are a major roadblock to paying down debt. When you have high interest, more of your payment is going to interest, instead of the principle balance.
One way you can lower your rates is simply by calling your credit card company and asking them. If you explain that you’re in a tough financial situation and may not be able to make your payments they will work with you.
There are several credit cards that offer balances transfers with a 0% interest rate for 12 months. Try and transfer debt from your accounts with higher balances to a new card with a low rate. This will help all of your payment go towards the principal balance allowing you to pay your debts off much faster.”
7. Stop Using Your Credit Cards
James Matthews, Managing Director, Blueprint
“Don’t spend too much of your income towards the debt initially beyond the minimum to make sure you’re building reserves to help avoid going right back into debt if you have an unexpected expense.
Once you’ve accumulated the reserves, start with the highest interest rate first and direct any available funds towards it while paying minimums on everything else.”
8. Don’t Try to Pay More than You’re Realistically Able to
Ashley Feinstein Gerstley, Founder, thefiscalfemme.com
“It makes sense that you would want to pay off your debt as quickly as possible but this can get some people in trouble. When we put more money toward our debt than we can realistically afford to, we end up paying off a chunk and then accumulating the debt right back throughout the month or next couple of weeks as we spend in our day-to-day.
This can make the process feel futile or like we are living on a hamster wheel just trying to get ahead. How much you can pay off all comes down to the golden rule of personal finance – money in minus, money out. Based on your annual income and expenses for the next year, how much can you put toward your debt each month or each paycheck?
I recommend turning this into a game. Let’s say you typically buy your lunch 2x per week for $10, but this week you decide to bring your lunch to work an extra day, saving yourself $10. Put the $10 you save toward your debt immediately or tally up the times you’ve save or choose a less expensive option throughout the week and put the total toward your debt at the end of the week. When we don’t see the benefits of our positive financial decisions directly, it can feel like there’s no point.
Reward yourself and make sure your decisions help you make progress toward your goals. Paying down debt doesn’t have to be scary or depressing, we can make it into a fun game. And the rules are up to us!”
9. Pay as little as possible on all of your debts
Michael Lux, Founder, The Student Loan Sherpa
“Even if you can afford the minimum monthly payment on your debts, securing a lower monthly payment allows you to direct larger payments to your highest interest debt. One common way of doing this is signing up for an income-driven student loan repayment plan.
If you can get lower payments on your federal student loans, it affords you the opportunity to pay off debt with high interest interest faster.”
10. The snowball or waterfall strategy
Derek Hagen, Owner, Fireside Financial
“This is a strategy where you rank your debts from highest interest rate to lowest interest rate. Pay the minimums on all of your debts, except for the one with the highest interest rate. Take the monthly amount you have for debt repayment, subtract the amount of the minimum payments, and the remainder would go to pay off the highest interest rate card.
For example: You have $500 to dedicate to paying off debt. Let’s assume the following debts:
- Debt A: $8,000 @ 22% – minimum payment: $240
- Debt B: $1,000 @ 9% – minimum payment: $30
- Debt C: $5,000 @ 15% – minimum payment: $150
You would pay $30 toward debt B, $150 toward debt C, and then $320 (500 minus 30 minus 150) toward debt A. Eventually, after A was paid off, you would pay $30 toward B, and $470 (500 minus 30) toward C. After C is paid off, all $500 would go toward debt B.”
11. Know your debt and how you got it
Kristin Pugh, CFP®, TrueWealth
“Industry professionals vary on the methods to pay down debt, but no matter the process, organizing your debt is a great first step. You need to answer these critical questions:
1) What are your spending habits (you got into debt for a reason!)?
2) How much do you owe?
3) What are your interest rates? and finally
4) Who are your creditors? You need to use a tool to consolidate this debt information. Also, you need to create a budget. Excel is one option to document this information and set up a budget.
Mint is another free tool that you can use to create a budget and manage debt (provides setting goals for paying them off).”
12. Know Your Options
Contey Smith, TrueWealth
“Consider these options to help get out of debt faster:
- Balance transfer: To minimize the cost of interest, pay off existing balances by transferring to another card with a 0% promotional interest rate. Make sure you can pay the balance in full before the promotional period ends.You must have good credit to take advantage of this opportunity.
- Debt Avalanche: Make minimum payments on all debts and dedicate additional funds and savings to the debt with the highest interest rate.
- Student Loans: Apply for an Income-driven repayment Plan (IDR) which allows for lower monthly payments and loan forgiveness for some candidates. While this may extend the payment period and increase interest over time, it is a useful tool while you are repaying other debts.”
13. Live on a Budget
Phil Risher, Founder, youngadultsurvivalguide.com
“If you want to pay off debt quickly, living on a budget is crucial. The reason it is important is because a budget gives you the structure to pay off you debt as quickly as you want. For example, if you want to pay off 12k in 12 months then you need to budget debt payoff of 1k each month and live off the rest.
For me, I lived off $500 a month, yes it was a sacrifice. Instead of renting or buying a place, I moved back in to my parents basement and negotiated to live rent free. Do you ever feel guilty about spending money because you have debt looming over your head? A budget takes the guilt away because you have already determined the purpose for each dollar you bring in.”
14. Raise Your Credit Score to Qualify for Low Interest Cards
Ally Abernathy, Editor, The Lenders Network
Balance transfers to a zero interest card is a great way to get out of debt quickly. However, if you have lots of credit card debt, chances are your credit score may not be good enough to qualify for these cards.
You’ll need to find other ways to raise your credit score while having high debt. One way to help improve your score is to dispute negative accounts with the Credit Bureaus directly. The Credit Bureau has 30 days from the time they receive your dispute to validate the account or else it has to be removed by law.
Often times you can have some success having collection accounts or late payments removed this way, which will improve your FICO score.
You can also contact debt collectors and ask them if you pay the account balance can they remove the negative mark from your report. This is called a pay for delete, and some collection agencies still offer this. As you pay down your credit card balances your credit score will slowly get better as well.
Other Suggestions to Pay Off Debt Fast
One of the tips given by our panel of experts was to reduce your payments on other types of loans so you can afford to make extra payments to get out of debt quickly. Your mortgage is one type of loan that you can drop your monthly payment by refinancing into a lower rate.
If you have an FHA or VA loan you can contact a lender about a streamline refinance. Which is a quick and easy way to refinance your mortgage, some lenders will not even perform a credit check.
If you have equity in your home you can tap into that equity and get money at a low rate you can use to consolidate debt. Cash-out refinance and equity loans will come with a much lower rate than most personal loans. You can even use the cash from an equity loan to pay off debt, such as student loan debt other high interest debts.
Debt Management and Debt Settlement
If you have lots of credit card debt there are DMP (debt management plan) companies that help people lower their rates, close the accounts, and set up a single monthly payment to take care of all your debts. The problems with these programs is that your credit score will be negatively affected. You can also do this on your own by simply calling your credit card company and asking them to lower your interest rates.
Debt Settlement programs work by having you go delinquent on the payments and negotiating a lump-sum payment for about half of the amount owed. Again, with these debt settlement programs your credit score will drastically decrease and they are very expensive. You can also settle your debt yourself by doing the same strategy these companies use.
If you have collections you’re trying to pay off, you should call the collection agency. They will be willing to reduce the amount you owe if you can pay if off with a short-term payment plan. The advice in this article are much better options than these debt consolidation programs.
RATE SEARCH: Check Home Equity Loan Rates