The Most Effective & Recommended Ways to Get Out of Debt Quickly
A lot of people want to pay off their debt or eliminate it completely but aren’t sure of the most effective approach. The truth is, there’s no single “best” method that works for everyone. To help you get started, here are twelve strategies. The more you implement, the quicker you are likely to get out of debt
1. Pay More Than the Minimum
Make sure that you always pay more than your minimum payments. If you only make your minimum credit card payments each month, it can take forever to pay off your balance. If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!
2. Spend Less Than You Plan to Spend
Most of us have wishes and wants that are bigger than our pay cheques. You might have heard the great saying that, “You can have almost anything you want; you just can’t afford everything you want.” Many people get into debt and stay in debt because they tend to buy what they want, when they want. Not even millionaires can afford to buy everything they want. If you want something, don’t buy it unless you have the money. If you can be satisfied with less than you would ideally want, even temporarily, you can use the money you save to pay down your debt. By the time your debt is paid off, you’ll probably have adjusted to your new priorities, and you can use the money that you are saving to put towards other financial priorities.
Another great way to spend less is to pay with cash rather than credit. McDonald’s has found that people spend 56% more at its restaurants when they pay with credit rather than cash. Studies have shown that people spend 100% more at vending machines or on event tickets when they use credit. Overall though, studies seem to show that people tend to spend at least 15% more on everything they buy when they use credit. If we apply this concept to an average Canadian household that currently buys everything with credit cards to collect points or get cash back, they would likely save well over $3,000 per year if they only bought things with cash instead (the points or cash back would only amount to $400 in value at best). Even if your savings aren’t as great as this example, you can probably see the point here. If you want to get out of debt, leave the cards at home, use cash, and don’t buy things with credit until your finances are back on track.
3. Pay Off Your Most Expensive Debts First
One of the most effective ways to get out of debt is to make minimum payments on all your debts and credit cards—except for one. Focus all your extra payments on the debt with the highest interest rate first.
Once that highest-interest debt is paid off, take the money you were putting toward it and apply it to the next most expensive debt. Keep following this method, gradually working your way down to the least costly debt. This approach, often called the avalanche method, helps you eliminate debt faster while saving on interest. Plus, as you see your progress, you’ll stay motivated to keep going.
4. Buy a Quality Used Car Rather than a New One
Dave Ramsey, a personal finance radio host, once said that, “A new $28,000 car will lose about $17,000 of value in the first four years you own it. To get the same result, you could toss a $100 bill out the car window once a week.” You can save yourself thousands of dollars if you buy a quality used car rather than a new one. The money you save can help you get out of debt much faster. Go to your local library and look in the Consumer Reports or Phil Edmonston’s Lemon-Aid books to find a quality used vehicle. Also read reviews online and see what others have to say.
If you do choose to buy a new car, Consumer Reports has always recommended choosing a reliable car with good fuel economy, and then they suggest you keep it for 15 years. This will stretch your dollars the furthest and keep you out of debt as you will have plenty of time to save for another new car.
5. Consider Becoming a One Car Household
If your household has two cars, consider downsizing to just one. Walking, taking public transit, or carpooling could save you thousands of dollars each year. On average, vehicle owners spend over $9,000 annually on ownership and operating costs. Redirecting that money to pay down your debt can have a significant impact.
Before making a final decision, try a trial run. Park your second car for a while, lower the insurance to pleasure use, and see if alternative transportation—such as transit, biking, walking, or carpooling—meets your needs. If you ultimately decide to sell the vehicle, occasional taxi rides or rentals will still cost far less than maintaining a second car long-term. If public transit is an option for you, it can be up to 80% cheaper than owning and operating a car.
6. Reduce Your Grocery Bill
To cut costs, consider stocking up on groceries when they go on sale—or take it a step further by building a stockpile and skipping one grocery trip each month, relying on the items you’ve stored. Focus on non-perishable foods like canned goods and cereal, as well as freezable items like bread and meat. By filling your pantry when prices are low and skipping a grocery run monthly, you could save up to 25% on your yearly food expenses. For a family of four, this could mean savings of $2,300 to $2,900 annually—money that can be used to pay down debt and get ahead financially.
The key to making this work is keeping an eye on sales, only stocking up when prices drop, and properly freezing perishable items. Even when skipping a grocery trip, you’ll likely still need essentials like milk, fruits, and vegetables, but cutting out everything else can lead to significant savings. If skipping a shop every month isn’t realistic, try doing it every other month—you’ll still see noticeable savings over time.
Related: 12 Ways to Save Big on Groceries & Shop on a Budget | 25 Budget Grocery Shopping Tips to Save More Money
7. Get a Second Job and Pay Down Your Debt Aggressively
Getting a second job, or consistently picking up an extra shift or two, is a common way for many people to pay down their debt. This doesn’t work for everyone, but if you can make it work, you could be debt free within a short number of years. For this to work, you must apply all of your extra income to debt repayment. Working the extra shifts or hours also doesn’t need to be permanent. Once your debts are paid off, you can look at scaling back again.
8. Track Your Spending and Identify Areas to Cut Back
For some people, doing this can save them almost as much money as working a part time job. You won’t know how much you can save unless you give this a try. Track what you actually spend—not what you think you should be spending, over the course of a month. If you aren’t honest with yourself in this exercise, it won’t work, but most people are surprised by what they find out about their spending. Once you know your spending habits, you should be able to identify areas where you can cut back. Allocate the money you “find” to paying down your debts.
Related: 10 Places to Find Money to Save Every Month
9. Get a Consolidation Loan
See if your bank or credit union can help you consolidate all of your consumer debts into one loan with one payment at a lower interest rate. This can be a helpful first step in getting your debt paid off. However, getting a debt consolidation loan will only help you if you create a budget that allows you to save some money every month. Savings isn’t usually what someone in debt thinks of first, but if you don’t have savings, you will likely need to reapply for credit cards part way through your loan and then rack up more debt. The end result could leave you worse off than before.
10. Refinance Your Mortgage
If you own a home, you might have enough equity to consolidate your debts into your mortgage. However, if your equity is limited, additional mortgage insurance costs could be expensive. Before making a decision, explore all your options and seek advice from an unbiased financial professional—not just your lender, who may have a vested interest in steering you toward this choice.
Like with a debt consolidation loan, rolling your debts into your mortgage requires a solid budget that includes savings. Without a savings plan, you may find yourself relying on credit again whenever an “emergency” arises. Continuously treating your home like an ATM can leave you with high debt, few assets, and little savings as you approach retirement. If this is a challenge you’re facing, keep reading.
11. Speak with a Credit Counsellor
If you are in debt and think that bankruptcy might be your only solution, start by speaking with a Credit Counsellor. Find out what programs are available to help you deal with your debts. A reputable Credit Counsellor will explain all of your options and let you choose the option that makes the most sense for you in your situation. Many people don’t know what they need to know about debt repayment programs at non-profit credit counselling organizations but most are relieved they took the time to find out before it was too late.
12. Create a Spending Plan
Okay, so the “b” word has to fit in at some point. In truth, a budget is just a spending plan. It will help you stay on the straight and narrow with your current debt payments, or your new accelerated payments. A spending plan is something you lay out to make sure that you are spending less than you earn.
Some people say that they don’t like budgets, but have these people ever tried one? Better yet, if you’ve lived all this time without a budget, how do you know you won’t like having one? After trying a realistic budget on for size, most people agree that the alternative—being in debt—is much worse. To learn how to create a budget, click here.
How to Get Help to Get Out of Debt
If you are struggling to get out of debt, ask for debt relief help sooner than later. Not only will you feel better knowing what to do, you’ll have more options available to you. An accredited Credit Counsellor at a non-profit credit and debt counselling organization will help you budget and create a plan with debt solutions that work for you. You’ve got nothing to lose and everything to gain!
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