How to get out of debt fast (…even if you’re dead broke)

No one likes to be in debt, and yet many of us live in it for years. 

If you’re wrestling with car loans, student loans, mortgages, and credit cards, this one’s for you. It can feel like there’s no way to dig yourself out. 

But don’t worry, there’s definitely a light at the end of the tunnel. First, you need to plan how to get out of debt. What you need is a solid strategy (and to stop burying your head in the sand). 

Step one is to face your debt head-on and tackle it with a strategy. 

Why is paying off debt important?

Debt is a fact of life for many. But long-term debt where you feel like you’re constantly buried doesn’t have to be your reality. 

In fact, this type of debt can have many negative effects on your life.

  • It can impact your mental health — feeling overwhelmed by debt is incredibly stressful
  • It can affect your credit report and make it harder to get credit in the future e.g. for a mortgage
  • Your paycheck disappears into debt, making it harder to boost savings

When you’re swamped by debt, it makes it much harder to save for the things that really matter. All of that money that’s tied up in debt repayments could be going to your retirement accounts or other savings goals. 

That’s why we want to clear debt ASAP!

Find out how much you owe

You wouldn’t believe how much money people waste by skipping this step and blindly paying off any bills that come in with no strategic plan.

This boils down to the fact that people feel guilty about their debt. They’d rather bury their heads in the sand than look at the reality of the situation and do something about it.

This is exactly what credit card/loan companies want — for you to hide from your statement every month and just blindly send them the minimum payment thinking you’re getting out of your debt. They LOVE it when you do that.

The reality is that minimum payments dig your hole even deeper.

It might be painful to learn the truth but you have to bite the bullet. Then you’ll see that it’s not hard to end this bad habit. In fact, you can get credit card companies to help you. Just look at the back of your credit cards for their number, call them, and ask them for the amount of debt you owe, the APR, and the monthly minimum payment on the card.

We challenge you now to step up and own your debt. You can do the hard work now, or the impossible work later.

Use this tool to track it (it’s the second link on this list). It’ll help you find out how much you owe to each company and what your interest rates are.

Stop right now and do this.

Done?

Congrats! Taking the first step is one of the hardest parts — now you’re well on your way to a Rich Life.

If your total debt number seems high, remember two things:

  1. There is a large group of people with MORE debt than you.
  2. From this day that number is only going to go DOWN. This is the beginning of the end.

Once you know how much you owe, the next step is learning how to get out of debt.

Bonus: Ready to ditch debt, save money, and build real wealth? Download our FREE Ultimate Guide to Personal Finance.

Decide how you want to tackle your debt

Once you know exactly how much you owe, you’re ready to strategically attack your debt. To do this, you need to come up with a plan of action. There are a few different tactics you can use to tackle your debt.

You need to prioritize which of your debts you’re going to pay off first — whether it be your credit card, student loans, or whatever. To decide which one to tackle first, you’ll want to consider the interest rates, size of the loans or credit cards, and any loan terms e.g. you have to pay by X date. 

How to get out of debt fast

Pay off the highest interest loan first

To get out of debt the absolute fastest, you’re going to want to pay off the loan with the highest interest rate first.

For example, let’s say Credit Card A has a balance of $1,000 and a 12% interest rate, and Credit Card B has $1,500 at 6% interest. You put down $150 total every month, paying the minimum payment (3%) on one and whatever’s left on the other. 

You’re going to save more money by eliminating Credit Card A first ($147 in total interest) vs Card B ($188). Once you’ve decided what you should prioritize, it’s time to come up with a plan of attack.

When it comes to your student loans, you can actually save thousands of dollars each year — by paying down your debt more each month.

Yes, you read that right. You can save money by spending MORE.

Let’s say you have a $10,000 student loan, at a 6.8% interest rate, and a 10-year repayment period.

If you go with the standard monthly payment, you’ll pay around $115/month. Like I said before, paying the minimum digs you into a bigger hole. Even $20 more per month can save you huge amounts of money.

The Debt Snowball method

Want an alternative way to clear your debt fast? 

The debt snowball method is another simple way to chip away at your debts. Rather than the biggest interest rate, you focus on your smallest debt. 

With the snowball method, you make only the minimum payments on your other debts. Any extra money you can pay, chuck it all onto your smallest debt. Clear that one as fast as you can. 

Then celebrate! You just cleared one debt.

Any money you were using to pay that debt is now freed up. You can now move onto the second smallest debt and pay more into that, clearing it faster. 

Keep working this way, and you’ll gain momentum every time a debt is cleared. By the time you come to your final and biggest debt, you’ll be able to pay off more and more because you don’t have other debts holding you back. 

The great thing about this method is that it really helps you feel like you’re making progress (because you are). Each debt you clear is another weight off your shoulders.

Bonus: Want to finally start getting paid what you’re worth? We show you exactly how in our Ultimate Guide to Getting a Raise and Boosting Your Salary

Negotiate your interest rate

But what if you can’t afford to make lots of extra repayments? We hear you. If you could pile a load of money onto your debts, you’d have cleared them by now, right?

If you’re looking for a tip on how to get out of debt with no money, here’s a simple one — negotiate with your lender. 

Not many people realize this, but you can actually save over $1,000 in interest with a single five-minute phone call.

Through simple negotiations, you can lower the APR on your credit card and put thousands of dollars back into your pocket.

At IWT, we LOVE negotiating interest rates.

It can be crazy simple too — in fact, here’s a word-for-word script that many of our readers have used already to lower their interest rates:

YOU: “Hi, I’m going to be paying off my credit card debt more aggressively beginning next week, and I’d like to lower my credit card’s interest rate.”

CC REP: “Uh, why?”

YOU: “I’ve decided to be more aggressive about paying off my debt, and that’s why I’d like to lower the interest rate I’m paying. Other cards are offering me rates at half what you’re offering. Can you lower my rate by 50% or only 40%?”CC REP: “Hmmm … After reviewing your account, I’m afraid we can’t offer you a lower interest rate.”

YOU: “As I mentioned before, other credit cards are offering me zero percent introductory rates for 12 months, as well as APRs that are half what you’re offering. I’ve been a customer for XX years and I’d prefer not to switch my balance over to a lower-interest card. Can you match the other credit card rates, or can you at least go any lower?”

CC REP: “I see … Hmm, let me pull something up here. Fortunately, the system is suddenly letting me offer you a reduced APR. That is effective immediately.”

It’s really that simple to save money in five minutes.

Make the call, and if you’re successful, do two things:

  1. Celebrate your accomplishment (this is a big deal).
  2. Make sure to adjust your debt chart from step one. You get to chop that big ugly interest rate down and lower your monthly payments.

Repeat this process for any other cards or debts you can to shave off a chunk of your debt.

Should you consolidate your debt?

At some point, you’ve probably considered consolidating your debt. There are a few benefits to this:

  • It makes managing all your debts simpler
  • You can save on interest

If you have several credit cards or personal loans with high interest rates, it can make sense to take out new finance, pay off all your debts and leave yourself with just one debt to manage. 

But there are two key things to remember. 

Consolidating your debt is only worth it if you can save money on interest. Moving to a loan with higher interest rates is going to leave you in a worse position, even if it makes managing it simpler. 

Also remember, taking out more finance doesn’t mean you can now spend more. Don’t make the same mistake some people do when they take out a brand new loan, pay off debts and then dump another big purchase on a credit card.

Debt consolidation loans are yet another debt, remember. It’s not a ticket out of debt unless you’re serious about clearing it and staying out of debt.

Create a conscious spending plan to avoid further debt

Paying off your existing debts is only part one of the story. The last thing you want to do is end up in the same position again in a couple of years. 

And yet, that’s what many people do. They work hard to clear their debts, only to learn absolutely nothing and end up right back where they started.

Getting out of debt isn’t just about clearing debts, it’s also about adjusting your lifestyle and mindset around debt. You need a conscious spending plan to avoid further debt.

So, there are a few things you can do to avoid unmanageable debt in the future.

Cut up your credit cards

Credit cards aren’t inherently evil like some people think. They can be a useful tool, but right now they’re no good to you if you’re in unmanageable debt.

While you’re clearing debt, the number one mistake you want to avoid is adding to that debt.

Some people get into the mentality that the more they pay off, the more they can put right back on that credit card. Don’t do this! You’re just making it so much harder for yourself.

Instead, you need to say goodbye to those credit cards and create a spending plan that does not involve relying on them. 

Create a practical, sustainable budget

If credit is a necessary part of your day-to-day budget, that needs to stop right here. 

It’s definitely easier said than done if you’re used to relying on debt, but with a practical budget, you can start to claw back some control of your money.

Step one in creating a budget is to do a full look at your income and outgoings. What cash do you have to work with? What are you spending and where can you cut back comfortably?

There are all sorts of budgets out there you can try. I like the 50/30/20 one, which allocates 50% of your income to needs (e.g. rent, insurance, groceries), 30% to wants (fun stuff, yes you can still have fun on a budget). And then there’s 20% to savings (retirement accounts, vacation fund). 

If that one doesn’t work for you, find one that does. Remember, for a budget method to work, it needs to be right for you. It needs to be sustainable long-term. 

That means you don’t want a budget that forces you to give up everything you love, because, let’s face it, you won’t stick to it. 

Avoid these mistakes when paying off debt

Want to clear debt and stay out of it? Make sure you avoid these common mistakes.

1. Keeping the same old habits

If your spending plan involves credit cards, payday loans, and relying on credit…you guessed it. That needs to stop. You can’t stick with the same old habits because it’ll be so much harder to dig yourself out of debt. 

Things need to change. A debt repayment strategy is only part of the work. You need a practical budget and a spending plan that’s sustainable. Changing habits is never easy and there will be an adjustment period, but it’s worth it to be free from debt. 

2. Not asking for help

Most people try to go it alone. Maybe that’s because of the “I got myself into this” mindset or they’re a bit embarrassed. Whatever it is, you’re not doing yourself any favors.

If you have unmanageable debt, one of your first calls should be to your banks or lenders to try and reduce that interest rate. This is a simple way to get help and if they say yes, you’re one step ahead than you were. 

Another way you can get help is to call a credit counseling service and get some advice. Credit counselors are trained to offer debt management programs and advice that can make all the difference. They can also help you set up a budget to avoid future debt.

3. Making only the minimum payments

Making only the minimum payments on all your debts is a common mistake people make because who wants to pay more than they need to?

The truth is, you’re actually paying more by avoiding those higher payments each month. All it does is prolong the debt and increase the amount of interest you need to pay. 

Try to make more than the minimum payments on at least one of your debts. You could save so much over the course of your loan in interest alone!

A life of debt doesn’t have to be your reality. If it always feels like you’re clawing your way through debt, there is a light at the end of the tunnel. 

But don’t do what so many people do and try to ignore debt. The fastest way to get rid of it is to face it head-on, come up with a strategy to pay it off, and a budget to avoid it in the future. 

Let’s not leave it there though. Debt repayment should be just one part of your financial plan. To learn the best strategies for managing your money, growing your income, and much more, download a free copy of our Ultimate Guide to Making Money.

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