Debt can make getting ahead in life feel impossible. It may prevent you from getting a mortgage, even with good credit. Making huge monthly payments on everything from your car to your credit cards creates a situation where even if you make more money than your peers, you feel poor.
Paying off debt takes time, but there are some things you can do to speed up the process.
Know your enemy
While you are intimately familiar with the minimum monthly payment amounts on each of your debts, you may not be aware of the interest rates and outstanding balance owed.
There are two problems with focusing on monthly payments. The first is that you never really feel the pain of paying interest since your principal and interest payments are rolled into one amount. The second is that although you make the payments on time, you don’t get the satisfaction of watching the monthly balance decrease.
If you don’t have one document that shows every debt, the corresponding interest rate, the monthly minimum payment, and how long it will take you to pay off the debt, create that now.
Keep this document somewhere accessible so you can update it monthly. You’ll need to see your progress to help you stay motivated.
Stop acquiring new debt
If you are constantly adding to the balances on your credit cards, stuck in a payday loan trap, or using a home equity line of credit to make up for the shortfall in your income, stop. Spending more money than you make will keep you in debt indefinitely.
If you don’t have a budget in place that’s easy for you to use, handle that problem right away. Take a look at some popular smartphone apps that connect directly to your spending accounts and credit cards. If you prefer to track your spending by adding up paper receipts, that’s fine. It doesn’t matter what method you use.
Paying off debt isn’t a practical goal if you are still acquiring debt. Do whatever it takes to stop adding to your pile of bills.
Figure out if you make enough money
Your budget will let you know where you can trim expenses and whether you need to concentrate on making more money. If you don’t already have a side gig and your full-time job gives you free time during the evenings and weekends consider taking on seasonal work, getting a part-time job in retail, or consulting for a bit of extra cash.
Start making bigger payments
There’s only one way to pay off credit cards while preserving your credit score and minimizing the interest charges. If you only make minimum payments, it could take years longer for you to see your debt levels drop.
Here’s how doubling your minimum payments helps pay off credit card debt faster:
Current payments
| Balance | Interest Rate | Monthly Payment | Expected Time to Pay Off | Total Interest Charges |
| $2,300 | 18% | $75 | 42 months | $804 |
Doubled payments
| Balance | Interest Rate | Monthly Payment | Expected Time to Pay Off | Total Interest Charges |
| $2,300 | 18% | $150 | 18 months | $333 |
In this scenario, doubling your monthly payments from $75 to $150 cuts two years off the time it’ll take to pay off this credit card. You’ll save $471 on interest charges, as well.
Pay more than a doubled monthly minimum payment if you can afford to but concentrate your efforts on one card. Paying down debt fast is difficult. You deserve to see progress. Some financial experts call this the “snowball method”.
The first step is to go through your budget and find areas where you can minimize spending. You’ll then use this money to pay down your debt.
Here’s an example budget:
- Rent: $900
- Utilities: $300
- Cell phone: $85
- Netflix: $13
- Hulu: $12
- Cable and Internet: $175
- Capital One Card minimum payment: $35 ($800 balance @ 22% interest)
- Credit One Card minimum payment: $75 ($2,300 balance @ 18% interest)
- Bank of America Card minimum payment: $135 (8,432 balance @ 12% interest)
- Furniture company financing minimum payment: $230 ($4,000 balance @ 19% interest)
- Auto loan payment: $630 ($7,500 balance @ 8% interest)
- Life insurance: $25
- Auto insurance: $145
- Subscription boxes (Ipsy, StitchFix, Bulu): $200
- Groceries: $300
- Entertainment: $100
- Lunches out: $300
- Gasoline: $200
- Emergency savings: $250
Total: $4,110
Note: Health insurance, retirement savings, and taxes automatically withdrawn from paycheck
With a bi-monthly paycheck of $2,060 , there’s not much left over to pay down debt faster.
| Creditor | Balance Owed | Interest Rate | Interest Cost with minimum payments | Months until debt is paid off |
| Capital One | $800 | 22 | $246 | 30 |
| Credit One | $2,300 | 18 | $804 | 42 |
| Auto Loan | $7,500 | 8 | $340 | 13 |
| Furniture Loan | $4,000 | 19 | $716 | 21 |
| Bank of America | $8,432 | 12 | $4,860 | 99 |
According to this scenario, if you don’t accumulate any new debt, you’ll have everything paid off except the Bank of America card in 3.5 years. It’ll take more than eight years to pay off B of A, though and by the time you are done, they’ll have charged you $4,860 worth of interest on a $8,432 debt.
It’s easy to see how making a few changes to the budget could free up a lot of cash, though.
- Rent: $900
- Utilities: $300
- Cell phone: $60 (used free bill negotiating app to reduce cell bill by $25 each month)
- Netflix: $13
- Hulu: $12
- Cable and Internet: $85 (cancelled cable for a $90 per month savings)
- Capital One Card minimum payment: $35 ($800 balance @ 22% interest)
- Credit One Card minimum payment: $75 ($2,300 balance @ 18% interest)
- Bank of America Card minimum payment: $135 (8,432 balance @ 12% interest)
- Furniture company financing minimum payment: $230 ($4,000 balance @ 19% interest)
- Auto loan payment: $630 ($7,500 balance @ 8% interest)
- Life insurance: $25
- Auto insurance: $105 (called around for quotes and found out that switching companies would save $40 per month)
- Subscription boxes (Ipsy, StitchFix, Bulu) $0 (used bill reducing app to cancel all subscription boxes)
- Groceries $300
- Entertainment: $100
- Lunches out $200 (cut weekday lunch budget from $15 to $10 per day)
- Gasoline $100 (carpooling with co-worker cuts gasoline costs in half)
- Emergency savings $250
Total: $3,555
There’s now $565 left at the end of the month to help pay down debt faster.
The emergency fund in this scenario should remain untouched. Without it, unexpected expenses would end up as extra charges on credit cards. It’s important to use an emergency fund to protect your ability to pay down debt.
It’s possible to reduce the relatively high car payment in this scenario, as well. Since this debt has the lowest interest rate but there are still about 12 payments left, refinancing may be an option. It’s not always the best move, but if you are going to add your car payments to your debt snowball, it could work in your favor.
Another option is to do a balance transfer on high interest credit card debt. If you already have a lower interest credit card with enough available credit, there’s no need to open a new account. Moving the balance from one card to another won’t hurt your credit score since it won’t change your total credit utilization ratio.
When making changes to your spending, be sure they are sustainable. In this scenario, you could throw even more money at your debt if you stopped eating out during the week. If that’s sustainable long-term, it’s a great idea. If it would make you feel deprived and possibly cause you to give up on your plan to pay off debt faster, it’s pointless to go to such extremes.
Current debt situation:
- Capital One Card minimum payment: $35 ($800 balance @ 22% interest)
- Credit One Card minimum payment: $75 ($2,300 balance @ 18% interest)
- Bank of America Card minimum payment: $135 (8,432 balance @ 12% interest)
- Furniture company financing minimum payment: $230 ($4,000 balance @ 19% interest)
- Auto loan payment: $630 ($7,500 balance @ 8% interest)
Total: $1,105 + $565 from revised budget = $1,670
| Balance | Minimum
Payment |
|
| Capital One | $800 | $35 |
| Credit One | $2,300 | $75 |
| Auto Loan | $7,500 | $630 |
| Furniture | $4,000 | $230 |
| B of A | $8,432 | $135 |
| Total monthly payments: | $1,105 |
By applying $565 to the Capital One credit card balance, you can pay off this debt in just two months with money left over during the second month.
| Balance | Minimum
Payment |
Month 1 | Month 2 | |
| Capital One | $800 | $35 | $800-$35-$565 = $200 | $200-$35-$565 = -$400 |
Apply the excess $400 to the Credit One card during month 2. Continue to use money from the debt budget to pay down this card until it has a zero balance. Then, move on to the next card.
Including interest charges, here’s how the new repayment schedule looks:
| Month # | Capital One | Credit One | Furniture | Auto Loan | B of A |
| 1 | 600.00 | 75.00 | 230.00 | 630.00 | 135.00 |
| 2 | 218.60 | 456.40 | 230.00 | 630.00 | 135.00 |
| 3 | Paid Off | 675.00 | 230.00 | 630.00 | 135.00 |
| 4 | 675.00 | 230.00 | 630.00 | 135.00 | |
| 5 | 540.38 | 364.62 | 630.00 | 135.00 | |
| 6 | Paid Off | 905.00 | 630.00 | 135.00 | |
| 7 | 905.00 | 630.00 | 135.00 | ||
| 8 | 905.00 | 630.00 | 135.00 | ||
| 9 | 398.25 | 1,136.75 | 135.00 | ||
| 10 | Paid Off | 1,535.00 | 135.00 | ||
| 11 | 108.46 | 1,561.54 | |||
| 12 | Paid Off | 1,670.00 | |||
| 13 | 1,670.00 | ||||
| 14 | 1,670.00 | ||||
| 15 | 1,569.03 |
The debt is paid off in 15 months instead of 99. You’ve saved 84 months of payments and $5,051.10 worth of interest charges by adding $565 a month to the payment plan.
When you have an auto loan, second mortgage, or personal loan in your debt snowball, make sure you won’t have to pay penalties for paying the debt early.
While the calculations may look complicated, it’s easy to plug your personal debt totals into an online Debt Snowball Calculator. Put in the debts in the order you’d like to pay them off.
Other ways to pay off debt faster
Personal loan
In some cases, it may be appropriate to pursue a low-interest personal loan to pay off high-interest credit card debt. You’ll a FICO credit score of more than 690 in most cases. The problem that many people face when they get a personal loan to pay off credit card debt is that the temptation to use their brand-new zero balance credit cards is too great. For this reason, the debt snowball is a better solution for most people.
Home-equity loan
If you are fortunate enough to have equity in your home, you may be tempted to access that low-interest credit and use it to pay off higher-interest debts. Credit card debt, medical debts, and personal loans are unsecured. This means that if you default on the payments, the companies can send the account to collections and eventually sue you to get a judgement in court for the amount you owe.
A credit card company can not foreclose on your home. However, when you use a secured line of credit to pay an unsecured debt, you are putting your home up as collateral. So, if you don’t pay the debt as promised, you could lose your home.
When you decide to sell your home, you must pay off all mortgages, including a home equity line of credit. If you owe more than your home is worth (plus realtor fees) you may be unable to sell it when you want or need to.
Refinancing
If you can refinance a loan at a lower interest rate without extending the term, you could save money on interest charges. Check to make sure you won’t incur early payoff penalties if you change loan companies.
Paying off debt could boost your credit score
During the process of paying off your debt, watch your credit reports carefully. Make sure your payments are reported to the credit bureaus correctly. Your credit score should slowly rise as your credit card debt falls.
This may create opportunities for you to get a better interest rate on your next car loan. You may suddenly qualify for a great low-interest rewards credit card. Make sure you use financial products wisely so you don’t have to start a new debt snowball.