Ready to Ditch Debt? Three Steps to Pay Debt Off Quickly

Having debt is no fun. Not only is it another bill siphoning money out of your paycheck, but you have to pay extra on top in the form of interest. Sometimes debt is unavoidable, emergencies do happen, or maybe you have debt but are ready to pay it off! Here are three steps to ensure your debt gets paid off quickly so you can spend that money on something a little more fun than a payment. 

Know Your Numbers

In order to make a plan to tackle your debt, you’ll want to know your numbers. What are these ‘numbers’ I speak of? You’ll want to know four things; the interest rate, minimum monthly payment, debt balance and any promotional offers such as zero interest for the first year.

When we know these numbers, we can use a debt calculator to see how long until we are debt free using scarios with various monthly payment options. You can see how long you have left if you continue to make minimum payments, pay an extra $50 a month or pay an extra $300 a month. Testing various monthly payment amounts might be the motivation you need to pay off  your debt for good!

Here is a tool by Vertex42 that I love to use (scroll down to download in Excel or Google Sheets) and I have a video here explaining how to use it.

Choose a Non-negotiable Payment Amount

Once you have decided on a payment amount that works for you, make that number non-negotiable in your brain and your budget.

When I was paying off my student loan I promised myself that before restaurants, clothing or vacation, I made my extra payment on my student loan. This was so that I could have them paid off by the date that the debt calculator gave me without things popping up and ruining the plan.

To help buffer the budget during this phase I waitressed a few nights a week on top of my day job. I say this because it allowed me to have more money for  things like vacation and restaurants. Without that extra income I would have had to reduce spending on those areas quite a bit.

Whether or not you have to reduce spending in certain areas while you are paying off debt will depend on your income and your cost of living. Maybe you have a great income you just need to streamline a bit. Or maybe you don’t have a high income and taking on another job isn’t possible right now, that’s ok you’ll just have a ‘debt free’ date that is a bit further out.

Use the Snowball Method

If you have multiple debts that you are trying to pay down, you should use the debt snowball method to focus on one debt at a time. By focusing all of your extra dollars on one debt, you can make a larger dent in the balance and ultimately pay all your debts off more quickly. 

For example, I had multiple student loans I was making payments on. By using the snowball method, I threw my entire ‘extra debt payment’ amount, that non-negotiable payment you have from above, at the debt with the smallest balance. This was on top of my minimum payment. Once I paid off that debt, I focused the minimum payment from the paid off debt along with my non-negotiable payment towards my next smallest loan. I continue the process until all debts are paid.

For the longest time I was trying to pay extra on all of my debts but I wasn’t seeing progress, I was losing motivation and I would quit. With the snowball method, my non-negotiable payment actually increased as time went on. Not because I was making more money, but because I was getting better at budgeting. As I saw my balance dwindling, I was becoming more motivated and started eliminating other expenses from my budget to focus every possible dollar towards my debt. This is how I was able to pay off more than $46,000 in 20 months.

My Why & How a Budget Changed Everything

After I finished college, I did what a lot of broke 20-somethings do. I moved to the city, got a full-time job making very little money and made up for my inflated lifestyle with a waitressing gig five nights a week. 

I had around $60,000 in student loan debt, a number so big that I couldn’t even comprehend it as a 22 year old. Combine that scary number with a society that tells you “student loan debt is good debt” and “debt is a part of life”, I had accepted my fate. 

So instead of more efficiently managing my finances, I worked to enjoy life and put my debt on auto payments. For around eight years it was out of sight and out of mind. I tell you this because I think a lot of us feel this way, especially before we drink the debt-free-lifestyle kool aid. We don’t believe we have options! We believe debt is a fact of life and we don’t have a choice in the matter.

It wasn’t until my late 20’s that my monthly debt payments were becoming an issue. How was I supposed to buy a house or save for a wedding with this much debt? Let’s be honest, I wasn’t close to either of those things but I wanted to be ready once I was at that point in life.

I started talking about my money struggles with peers and I learned of an entire community of people paying off large amounts of debt, in relatively small amounts of time. These people were living my dream and I couldn’t believe it took me this long to find them! 

I quickly tallied up my debt and there it was, the number that I had been avoiding for a long time, the amount between me and my new debt free life, $46,514.91.

I created a “budget”, at the time it was more like a list of bills, and I committed to a number that I thought I could afford to pay extra towards my debt each month. 

I had a target date that I was going to be debt free but once I started to see progress, I cut the time in half. Not because I was making a ton of money but because I quickly realized how much money I was actually wasting a month. Going out to eat, new clothes, alcohol. All the things!

I was making progress and I was seeing first hand the impact of paying extra towards my debt! I also began playing around with a few debt-free calculators online and calculated the impact of every extra dollar that I paid. This became my motivation to bump up my payment to something bigger, while still manageable, and it allowed me to shed years off my debt free journey.  

Each milestone was cause for celebration and motivated me to pay even more. Quickly my amount owed was $40,000, then $30,000 and eventually single digits and gone!

My budget evolved over time and became the source of my success, as cheesy as that sounds. I was able to prioritize the things I loved most, like going out to eat with friends or road trips with my partner and pup, while still paying down debt.

Some months I paid more and some less, but the goal was there and my mind was set that my future life was so much more important than this life I was living that was making me more broke.

Becoming debt free doesn’t happen by accident and it doesn’t happen overnight. I had to learn what a budget was and how to stick to one. If you can’t relate to the word budget, I was right there with you! I mostly wanted to know how much extra I could be sending towards my student loans and it just so happens a budget tells you that, who would have thought?

If You Have Federal Student Loans, What's Your Plan?

May I extend my fullest congratulations to those with Federal student loans. You are granted, yet again, an extension to when your payments will resume.

Now let me put my overbearing mother-figure hat on and ask you, “what are you doing about it?” How are you improving your finances with this never-been-done-before miracle that has come out of a horrible time for our world? 

These COVID relief measures mean much more than simply not having to make your payment. The bigger piece is that you are not accruing any more interest. Compound interest can be a wonderful thing when you are earning it, but it has the opposite effect when you owe it on a debt.

What happens if you continue to make your payments when they aren’t required? This breaks down to a $393 student loan payment (the national average) going directly to pay off the balance of the loan. 

Normally a part of that $393 payment goes towards the principal balance and another part goes towards new interest that has accrued since your last payment. Your payment has less of an impact when you are also paying on interest, taking longer to pay off your loan.

Now I ask you again, what will you be doing with this newly awarded time? Are you paying off high interest debt? Are you using it to increase the amount saved in your emergency fund? Are you doing the work to get on a working budget while you have some wiggle room?

If you didn’t say yes to one of the above, I want to ask you ‘why not’? I am a true believer in ‘everything happens for a reason’ and if this wasn’t a huge wakeup call I don’t know what is.

We have been taking our health, relationships and finances for granted for decades now. I am not the first to write about what 2020 has taught us but I am here to reiterate it for those of you with federal loan debt. 

How you focus your time and energy with your finances these coming months will have a major impact on the rest of your life, good or bad.

Are you going to continue to look the other way at your debt, knowing it will ‘get paid off eventually’. Or are you going to jump in the deep end, as hard as it might be, and create a plan to change your future for the better?

Get started with tracking your spending with this free tool to see where your money is currently going. We can’t change our futures unless we dig into our past.

My Debt Free Journey Started With a Pressure Cooker

I am a big believer in having as little debt as possible, but probably not for the reason you are thinking. There are actual physical, emotional and financial reasons for you to get rid of your debt.

When I was on my journey to getting rid of my student loans I was stressed constantly! And the ironic part was that I couldn’t afford the occasional massage, because I had no money, and I couldn’t relax by curling up on the couch because I was working all the time.

Symptoms of financial stress are real, here are a few of the big ones:

The first real reason to get rid of your debt is that you are carrying less risk, hello 2020. Lose your job? Pay cut? I dropped from 40 hours/week to 20 hours/week basically overnight at my dayjob because of the pandemic, and that was way more stressful than my previous student loan stress. But since my loans were paid off, I just had to reevaluate my budget and watch my spending. Even though I didn’t have extra money, I wasn’t wasting what little money I did have on debt payments. 

A better credit score is another. Sure, debt is a factor for a good credit score but it’s not that simple. You can have too much debt which would end up costing you thousands of dollars of interest for that next house, car or boat you’ve been eyeing up because you didn’t qualify for a better interest rate. And debt is actually a very small percentage of this score. The only debt I have is a mortgage and I pay my credit card in full every month and my rating is still excellent, it can be done!

Better cognitive function is next up. Yup, this is proven! Studies show that experiencing poverty impaired people’s attention span, working memory, and self-control. Did someone say self control? Have I ever mentioned that I once bought a pressure cooker on an infomercial before Instapot was even a thing? Yeah, I couldn’t afford it and who knows why I thought I needed one. Now I have the pleasure of a kitchen appliance that weighs a ton that I use once a month when I decide to make rice. Fortunately, studies also show that paying off debt reverses these problems!

Less chronic pain is another real benefit to getting rid of your debt. People with high levels of stress caused from debt were more likely to experience migraines, back pain and general muscle tension. They were also more likely to buy over-the-counter painkillers.

Money Crashers goes into thirteen other reasons you will want to get rid of your debt. The general consensus is that debt is bad, we all know that. But maybe you will see some of your symptoms on this list, just like I did. And maybe it will be enough for you to take the steps to pay down any unnecessary debt to improve your finances along with your mental and physical health.

How Much Extra Should I Be Paying on My Student Loans?

This is a fun question because when I start digging deeper into your finances as a coach and I tell you how much you can afford on paper - the jaws drop! We have been trained to think that if we are making our minimum payments we deserve a pat on the back - because we did it! Right? We didn't have an adjusted payment, we aren't in forbearance, we made the payment. Well, sorry, but no. 

That minimum payment will cost you tens of THOUSANDS of dollars in interest that frankly, you can't afford. Nobody can! In most situations you should be able to pay double (at least!) on your loan to get rid of it! There are a lot of financial calculators online, I like Unbury.me, that help you play around with various extra payment amounts to find out just how long it will take you to pay off your debt. 

Give it a shot, it's really motivating to see if you pay just a little extra each month, the number of years you can knock off the term of your loan!

Keep Paying Your Federal Student Loans While They Suspended, Here’s Why

Right now you are not required to may a payment on your federal student loan, sounds great right? Wrong! If you are still employed, or your household can afford to make your monthly loan payment, you should continue to do so. And, this may sound crazy but, pay extra!

Think about it this way, normally you have interest tacked onto your loan each month. So when you make your payment, some goes to the loan and some goes to interest. 

Right now, with your payments, 100% of it is going directly to the principle! That means that every penny you are sending to your lender is paying down your debt.

Of course, if you are worried about making rent or buying groceries you should hold off. But, if you are one of the lucky ones, hit it hard!

This Is What Debt You Should Pay off First!

Debt, a lot of people have it but no debt is good debt. Hear me now, I will say it again. YOU DON'T WANT DEBT.

Ok, now that we got that out of the way, if you do have debt and you are trying to get rid of what, where do you start? Reminder, no judgement, I was there too with a scary amount of student loans, but I am here to help.

Ok first, we want to list all debts from largest to smallest. I also like to put the interest rates next to them because it might effect things.

After we list all our debts, we are most likely going to pay the smallest debts first. This is snowball method, you can also use the avalanche method which is where you pay off the highest interest rates first. Back to paying off the smallest, this helps with creating easy wins as you pay them off. If it takes you a year to pay off one debt (let's say it's your largest), a year is a long time before you get a win in your journey. Too long and it's hard to keep up momentum. 

With that, if you have a $300 credit card bill that is at 25%, we gonna get rid of that.

Back to the plan, once you pay off your first debt, that money then rolls into your payment for your next debt, and so on. And that's it! Easy right? Stay on track, remember your why and life will be grand on the other side.