How to Get Out of Debt Faster

Feeling overwhelmed by debt? You're far from alone. In fact, around 75-80% of U.S. households are carrying some form of debt. A recent study reveals the average household debt has reached $105,056. While mortgages account for the bulk of this debt (around 70%), here's a closer look at the average debt balance by category:

• Mortgage Debt: $263,180
• HELOC (Home Equity Line of Credit): $45,157
• Auto Loan: $24,326
• Student Loan: $11,652
• Credit Card Debt: $6,380

It’s important to note, having debt is not an inherently ‘bad’ thing. Taking out loans can create opportunities such as financing your education to land your dream job, securing a mortgage to buy a home to build equity and raise your family in, and building your credit history by making on-time payments.

Keep in mind, the more you finance, the more you tie up your cash flow with monthly obligations and finance charges that could end up costing you hundreds, if not thousands of dollars each year. This is money you could put toward other things such as an emergency savings fund and/or a retirement account. That’s why paying off debt is one of the most important steps in securing your long-term financial freedom.  While paying off debt can seem overwhelming, these five simple tips will help you get rid of it in less time than you might think.

Get a Clear Picture of Your Total Debt

The first step in managing your debt is to take stock of what you owe. Create a comprehensive list of all outstanding balances, so you can fully understand the scope of your financial obligations. Remember, debt isn't limited to just credit cards or loans—it includes everything from student loans, car loans, and medical bills to mortgages, home equity lines, personal loans, and even that $100 you owe your best friend. For each debt, be sure to include the outstanding balance, the minimum monthly payment, and the interest rate or APR associated with each one. This will give you a clear, complete picture of your debt landscape.

Create a Budget

Now that you have a clear understanding of your total debt, it’s time to build a budget that will help you determine how much you can allocate toward debt repayment each month. There are many budgeting methods to consider, such as the 50/20/30 Rule or Pay Your Self First strategy. Regardless of the approach you choose, your budget should cover key areas:

• Income: List all sources of income, including paychecks, side gigs, etc.
• Essentials: Allocate funds for necessities like groceries, utilities, gas, prescriptions, and any other non-negotiable expenses.
• Debt Payments: Include the minimum monthly payments for each debt.
• Emergency Fund: Set aside a portion of your income to build or maintain an emergency savings fund.
• Discretionary Spending: Allow room for personal spending on things you enjoy but keep it reasonable.

Any remaining funds after covering these categories should go toward accelerating your debt repayment. If you find that there’s little left after essentials, minimum payments, and savings, it’s time to reevaluate your discretionary spending and cut back where possible.

Avoid Adding New Debt

One of the most important steps in paying off existing debt is to avoid taking on any new debt. Your efforts to pay off existing debt while creating new debt will be likened to running in a hamster wheel. You will never make any progress.  To curb the temptation to overspend, try using cash for discretionary purchases. Once it’s gone, it’s gone. If you find yourself reaching for credit cards, consider keeping them safely tucked away out of sight at home, so they’re not easily accessible when you’re out shopping. This simple strategy can help break the cycle of debt accumulation.

Choose the Right Debt Repayment Strategy

Just as there are various ways to budget, there are multiple strategies for tackling debt. What works for one person may not work for another. The important thing is to choose a repayment approach that keeps you motivated and focused on your financial goals. Here are some common strategies:

Paying Smallest Balance First

This method focuses on eliminating the smallest debt balances first, helping you gain momentum. Here's how it works:

• Continue making the minimum payments on all your debts.
• Use any extra money to pay off the debt with the lowest balance.
• Once that debt is paid off, apply the money you were using for that balance (plus the minimum payment from the next debt) toward the next lowest balance.
• Repeat the process until all debts are paid.

This approach is often called the “snowball method” because as you pay off each debt, the amount you can apply to the next debt grows larger, helping you build momentum and stay motivated.

Paying Balances with Highest Interest Rate First

If your goal is to save money on interest, focusing on paying off the debts with the highest interest rates first is a smart strategy. It works as follows:

• Direct all your extra funds toward the debt with the highest interest rate, while continuing to make minimum payments on your other balances.
• Once that debt is cleared, move on to the next highest-interest account, and so on, until all your debts are paid off.

This approach reduces the total amount you’ll pay in interest over time and helps you save money in the long run.

Debt Consolidation

While it’s crucial not to take on new debt, consolidating your existing debts into a single loan with one monthly payment can help simplify the process and potentially lower your interest rates. You can consolidate through options like personal loans, lines of credit, low-APR credit cards, or even debt consolidation services. The key here is discipline—you must resist the temptation to rack up new debt while paying off your consolidated balance. With a lower interest rate, you can pay down your debt faster and more efficiently.

Whichever strategy you choose, the most important thing is to stay focused on your goal and remain consistent in your efforts.

Take Advantage of Financial Windfalls

No matter which debt repayment strategy you choose, make sure to use any unexpected financial windfalls to speed up the process. This could include things like bonuses, tax refunds, birthday money, or even inheritances. While it’s tempting to treat yourself with these extra funds, your future self will thank you when your debt is paid off sooner rather than later.

Regardless of how much debt you have, creating a plan and staying disciplined will help you break free from the burden of debt faster than you might think. Not only will this bring peace of mind, but it will also set you up for greater financial security in the future.