Paying off debt isn’t actually one simple quick fix. There are many possible paths, including first taking the time to evaluate your current finances, working to stay motivated as you pick a payoff method to best suit your needs, and maybe even considering putting extra money toward your debt when you can.
No matter what kind of debt you are facing — student loans, credit card, or medical debt — to establish a plan to pay off debt fast, it’s good to know how much you owe and how much extra you can afford to pay. Here we will lay out some common steps to help you on your journey.
Step 1: Creating (or Re-evaluating) Your Budget
It may be difficult to tackle your debt efficiently if you don’t actually know how much you currently owe and what the terms are. The first recommended step is to track exactly what you need to pay back. You can start with a simple spreadsheet, or try a budgeting app meant to help track your spending.
Take a look at your net monthly income, after taxes and other deductions, and then subtract all of your non-negotiable expenses, such as rent, utilities, and gas. Then subtract the minimum payments you must make every month for your debt. When writing out your expenses, don’t forget about groceries, gas or transportation, utilities, or other bills you have to pay monthly.
The amount you’re left with is the money you have available for everything else—shopping, the gym, dining out, Netflix, saving, and yes, even making extra debt payments.
If it works with your income, the 50/30/20 budget is one simple method for people starting to reorganize their finances. This budget allocates 50% of your income for essentials, like rent and bills, 30% toward personal day-to-day spending, and 20% for savings or financial goals.
(Right now, your goal may be to pay off debt as efficiently as possible, but eventually that could change to another goal like retirement savings or buying a house.)
A budget can also give you valuable insight about your spending and can help you set limits on certain categories based on your habits by looking back over the last few months of expenses and payments. For instance, if you notice you’ve been spending a lot on clothing recently, you can put a bigger cap on that type of spending for yourself and divert the extra money toward debt.
If you find that you’ve been spending more than you earn by using credit cards, you may want to make a plan to stop using those cards while you go after lowering your outstanding debt. Some suggestions would be keeping the cards in a drawer at home and maybe deleting them from your online shopping accounts.
According to the Journal of Consumer Policy, once people evaluate how much they are spending on a credit card, they actually tend to spend less .
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Step 2: Focusing on One Debt at a Time
One of the ways that can help pay off debt expeditiously is to focus on only one debt at a time. If you spread your money out over all of your debt payments, you might not see progress as fast as you want. By focusing on one goal at a time, you may see success sooner—and that motivation could help you keep your debt payoff plan on track.
There are two well-known, go-to ways to pay off debt by focusing on one debt at a time. The snowball method is where you focus on paying off your debts in order from smallest balance owed to largest by allocating extra money to those smaller balances, while still keeping up with minimum payments on other debt. The main benefit is seeing some of your debt paid off sooner, because you started with the smallest debt.
But if you would prefer to attack your high-interest debt, the avalanche method is where you focus your extra money toward your more expensive debt first, again while still paying down your other debts. Whichever tactic you choose, either way, you will be focusing on eliminating debt—one loan or one credit card at a time.
Based on the terms of your outstanding debt and new budget, figure out which debt you want to focus on based on your preferred debt payoff strategy, and you can start getting to work!
Step 3: Putting Extra Cash Toward Your Goal
As briefly outlined above, extra cash can help to propel your success to get out of debt. High-interest debt can drain your financial health and makes it harder to see meaningful results.
Even if you think you are only able to make the minimum payments on your debt right now, there may still be ways for you to contribute more toward your debt.
Once you establish an emergency fund, for example, any extra income you get during this period where your goal is to pay off debt faster can go toward what you owe.
Bonuses you receive at work, your tax refund, any side job income, or cash earned from selling items you don’t need—all of this money could go directly toward your debt payoff.
By putting this money toward your debt, instead of saving it for a new car or spending it on a vacation, you will hopefully pay off your debt quicker so you can eventually shift your financial focus to more fun goals.
Consolidating Debt With a Personal Loan
Another potential option to help restructure your debt into better repayment terms could be an unsecured personal loan. SoFi offers personal loans with low rates and no fees. You may qualify for a SoFi personal loan and use it to consolidate your credit cards or other high interest debt you may have.
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