12 of the Fastest & Most Effective Ways to Get Out of Debt & Pay Down Debt
Many of our clients come to us wanting to pay down their debt or get rid of it completely. Our clients aren't alone
The more of these steps you can apply the quicker you will get out of debt.
1. Pay More Than the Minimum
Paying more than your minimum required payment on any credit card, loan or line of credit will help you beat the system. Paying even an extra $50 above the required payment immediately puts your debt on the fast track.
2. Spend Less Than You Plan to Spend
Most of us have wishes and wants that are bigger than our paycheques. You might have heard the old saying, “You can have almost anything you want; you just can’t afford everything you want.”
In some cases you get in debt due to an unforeseen circumstance and in others it's simply because you are buying things that you cannot afford. If you want something, don’t buy it unless you have the money in cash. 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.
Lesson: Whenever possible pay in cash.
3. Pay Off Your Most Expensive Debts First
Lack of Cash Flow is what kills most businesses and the same rings true with household budgets.
One of the smartest strategies for getting out of debt is to make minimum payments on all of your debts and credit cards except for one. Chose the one debt that is costing you the most ex. Highest Monthly Payment, and focus on paying it off. This way you will have more funds to work with month to month. It will help alleviate some of the stress you feel trying to make every payment.
Once your first, most expensive debt is paid off, take all of that money that you were paying on that first debt and focus it on the next most expensive debt.
Lesson: This strategy will get you out of debt quickly, and you will feel encouraged as you see your progress.
4. Buy a Quality Used Car Rather than a New One
You don't really notice but most older cars still look and run just the same as news ones. Chances are they have not changed the look of the model you have your eye on in years.
Purchasing a car cash, or paying off a smaller car debt quickly and not having a car bill puts you in the driver seat of your finances - both literally and figuratively.
Of course, buying a new car is something you can do once you are out of debt and in a secure financial position.
Lesson: Save thousands of dollars on both the purchase price and your total cost of borrowing. Improve your cash flow quickly. This is something we highly recommend for our clients that are in business for themselves.
5. Consider Becoming a One Car Household
If your family has two cars, consider getting rid of one and either walking to work, taking transit, or car pool. You can literally save yourself thousands of dollars a year by only using one car. The average vehicle owner spends over $9,000 per year to own and operate their vehicle. If you use this money to pay down your debt, it will make a massive difference. However, instead of going cold turkey and selling your second car right away, try test driving this idea first. Parking your car for a while, drop the insurance down to pleasure use only, and see if taking transit, walking, cycling or car pooling works for you. If you do decide to sell your second car, even the odd taxi trip or rental car won’t amount to nearly as much as you would pay keeping your second vehicle permanently. If there is any chance that transit might work for you, this option alone is often 80% cheaper than owning and operating a vehicle.
6. Save on Groceries to Help Pay Off Debt Faster
To save some money to pay off your debt faster, try stocking up on groceries when they are on sale, or go one step further and stockpile when they are on sale and then skip one grocery shop every month and live off of the food you stockpiled. You can stockpile non-perishable groceries like canned goods, cereal, and things that you can freeze like bread and meat. Filling your cupboards when groceries are on sale and then skipping one grocery shop each month can save you up to 25% on your annual grocery bill.
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.
If you are able to make this happen and handle all of your monthly bills this is the best way to tackle your debt.
8. Track Your Spending and Identify Areas to Possibly Cut Back
Do you buy lunch every day?
Do you buy groceries and produce that later goes to waste?
Are you subscribed to things you no longer have a need for or use?
Track what you spend and be honest with yourself. You can probably find at least $50 you can allocate towards debt repayment.
Lesson: Understanding your spending is key.
9. Get a Consolidation Loan
Getting a debt consolidation loan hits the reset button.
It immediately begins rebuilding your credit and it immediately relieves the stress of paying several lenders.
By putting it all into one monthly payment, with lower interest rates than what you are currently paying will bring down your monthly expenses and this will allow you to save up the funds to make a lump sum payment eventually.
This is a great idea if you create a budget and an exit plan.
When outlined correctly, with the help of professionals like the ones working at Moneyhaus this helps keep you from building up new debt and allows you to save money every month.
10. Refinance Your Mortgage
If you own your own home, you may have enough equity to consolidate all of your debts into your mortgage. Make sure you consider all of your options and seek advice from professionals like the ones working at MoneyHaus.
If you do refinance your home and consolidate debts into your mortgage, you need to think of the new mortgage like the debt consolidation loans we discussed above. It's super important that you keep your spending under your income (following a budget is usually the best way to do this) and allocate money to each month to savings. If you don’t save any money, you’ll always be tempted to borrow more when “emergencies” arise.