12 of the Fastest & Most Effective Ways to Get Out of Debt & Pay Down Debt
A lot of people tell us that they would love to pay down their debt or completely get rid of it altogether, but they aren’t quite sure of the best way to do it or where to get started. There really isn’t any one “best way” that works perfectly for everyone. So here are a dozen proven suggestions to get you started. The more of these you can apply, the faster you will get out of debt.
1. Pay More Than the Minimum
Make sure that you always pay more than your minimum payments on you credit cards, overdraft, or line of credit. If you only make your minimum credit card payments each month, it can literally take forever to pay off your balance. If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!
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.” Many people get into debt and stay in debt because they tend to buy what they want, when they want. Not even millionaires can afford to buy everything they want. If you want something, don’t buy it unless you have the money. 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.
Another great way to spend less is to pay with cash rather than credit. McDonald's has found that people spend 56% more at its restaurants when they pay with credit rather than cash. Studies have shown that people spend 100% more at vending machines or on event tickets when they use credit. Overall, studies seem to show that people tend to spend at least 15% more on everything they purchase things using credit. If we apply this concept to an average Canadian household that currently buys everything with credit cards to collect points or get cash back, they would likely save well over $3,000 per year if they only bought stuff with cash instead (the points or cash back would only amount to $400 in value at best). Even if your savings aren't as great as this example, you can probably see our point. If you want to get out of debt, leave the cards at home, use cash, and don't buy things with credit until you've paid down your debt to the level you're working towards.
3. Pay Off Your Most Expensive Debts First
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 charging you the most interest and focus all of your extra payments on paying off that one first.
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. Continue this method as you pay down each of your debts, and you will be left with your least expensive debt to pay down last. This strategy will get you out of debt quickly, and you will feel encouraged as you see your progress. There is also a different variation of this strategy that a lot of people find even more motivating. It's called the Snowball Method. You can check it out to see if it might work better for you.
4. Buy a Quality Used Car Rather than a New One
Dave Ramsey, a popular personal finance radio host, once said that, “A new $28,000 car will lose about $17,000 of value in the first four years you own it. To get the same result, you could toss a $100 bill out the car window once a week.” The lesson here is that you can save yourself thousands of dollars if you buy a quality used car rather than a new one. The money you save can help you get out of debt much faster. Go to your local library and look in the Consumer Reports or Phil Edmonston’s Lemon-Aid books to find a quality used vehicle.
If you do choose to buy a new car, Consumer Reports has always recommended choosing a reliable car with good fuel economy, and then they suggest you keep it for 15 years. This will stretch your dollars the furthest and keep you out of debt as you will have plenty of time to save up for another new car.
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. A family of four could possibly save $2,300 to $2,900 a year by doing this. Applying these kinds of savings to your debts, will definitely put you ahead in the long run!
The key to this strategy is watching for sales, only stocking up when groceries are on sale and freezing foods properly. When you “skip” a grocery shop, you will still need to buy perishable groceries like milk, fruit, and vegetables, but hopefully you can skip the rest of what you would normally buy. If you can’t skip a shop once a month, then try for once every other month. That can still save you a fair amount of money. For many more ways to save on groceries, check out these tips.
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. For this to work, you must apply all of your extra income to debt repayment. Working the extra shifts or hours also doesn't need to be permanent. Once your debts are paid off, you can look at scaling back again.
You could also consider generating some extra income to pay down your debt by capitalizing on a hobby you enjoy, or a skill set you might have. For example, if you happen to be a good writer, consider freelancing articles for blogs, newspapers, media outlets, or on a freelance website. If you’re crafty, consider selling your creations on Etsy. If you're a handyman, see if you can pick up some extra jobs (you may even be able to find websites that can help connect you with people who need your skills).
Some people also use their home to generate some extra cash. Is it possible for you to rent out your basement, rent out the storage space in your garage, rent a room in your house (you could maybe do this on Airbnb), or can you take in a student for some extra income?
8. Track Your Spending and Identify Areas to Possibly Cut Back
For some people, doing this can save them almost as much money as working a part time job. You won’t know how much you can save unless you give this a try. Track what you actually spend—not what you think you should be spending, over the course of a month. If you aren’t honest with yourself in this exercise, it won’t work, but most people are surprised by what they find out about their spending. Once you know your spending habits, you should be able to identify areas where you can cut back. Allocate the money you “find” to paying down your debts.
9. Get a Consolidation Loan
See if your bank or credit union can help you consolidate all of your consumer debts into one loan with one payment at a lower interest rate. This can be a helpful first step in getting your debt paid off. However, getting a debt consolidation loan will only help if you create a budget that does two things:
- It helps keep you from building up new debt while you're paying off the consolidation loan.
- It allows you to save a bit of money every month.
Savings isn’t usually what someone in debt thinks of first, but if you don’t have savings, you'll likely need to use your credit cards again part way through your loan and end up racking up more debt. The end result could leave you in the same place as before or even worse off. A U.S. bank that reviewed all its debt consolidation loans over a number of years discovered that over 70% of people who took out a debt consolidation loan from them were no better off financially after repaying their loans. This happened because these people did not solve their underlying problem of spending more than they earned.
So the key to benefiting from a consolidation loan and making it an effective tool is to use a spending plan (a budget) to ensure you keep your spending under control and set aside some money each month for emergencies or unplanned expenses which will inevitably occur.
10. Refinance Your Mortgage
If you own your own home, you may have enough equity to consolidate all of your debts into your mortgage. If you don’t have much equity in your home, additional mortgage insurance costs may be expensive. Make sure you consider all of your options and seek advice from someone other than your lender (since they have a vested interest in getting you to choose this option). If a normal bank or credit union isn't able to help you, don't rush off to find the first home equity finance company that is willing to give you the money. Instead, have a conversation with an accredited, non-profit Credit Counsellor first. You may have better options other than refinancing your home that you're not aware of. They can help you assess all your options and come up with the best plan to move you forward and accomplish your financial goals.
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. Repeatedly using your home as a bank machine can set you up to face retirement with a lot of debt, no assets, and no savings. If this is something you’re struggling with, read on.
11. Speak with a Credit Counsellor - It's Free
If you are in debt and are really struggling to make any headway paying down your debt, start by speaking with a Credit Counsellor. Find out what programs are available to help you deal with your debts. A reputable Credit Counsellor will explain all of your options and help you choose the option that makes the most sense for you in your situation. Many people don’t know what they need to know about debt repayment programs at non-profit credit counselling organizations, but most are relieved they took the time to find out before it was too late. Speaking with a non-profit Credit Counsellor about your options is confidential, non-judgmental, and usually free.
"This place is truly amazing. I met with [a credit counsellor] today and she was more than helpful when it came to making up a debt repayment plan for me. I can finally have a good sleep tonight knowing I will have my finances back on track."
12. Create a Spending Plan
Okay, so the “b” word has to fit in at some point. In truth, a budget is just a spending plan. It will help you stay on the straight and narrow with your current debt payments, or your new accelerated payments. A spending plan is something you lay out to make sure that you are spending less than you earn.
Some people say that they don’t like budgets, but have these people ever tried one? Better yet, if you've lived all this time without a budget, how do you know you won't like having one? After trying a realistic budget on for size, most people agree that the alternative—being in debt—is much worse. To learn how to create a budget, click here. We've also built a budgeting tool that can guide you through the budgeting process to make budgeting as easy as possible.
How to Get More Help to Get Out of Debt
The sooner you start dealing with your debt, the sooner you'll have it paid off. The next few years will pass whether you pay it off or not, so start by trying at least one or two of these strategies. You've really got nothing to lose!
If you need some help getting started with a plan, or if you're not sure if your budget is realistic, contact a non-profit Credit Counsellor for a free, confidential appointment. Appointments can take place either over the phone or in person, and they don't obligate you to anything. The Counsellor will review your whole situation with you and then suggest options to help you reach your goals. Typically, the earlier you contact a Credit Counselor, the more options you'll have.
This article was originally published on May 3, 2010 but has been updated several times since.
These articles and resources may be able to help you further.
10 Tips for Paying Off Credit Card Debt
Practical ways you can quickly tackle your maxed out credit cards and take your first real steps toward getting out of debt.
Create a Plan to Pay Off Your Debt Faster
See how much more quickly you can pay off your debt with these helpful calculators.
This is good practical advice. I am in debt like most people, but being a single parent is even more challenging. This has helped me to look at things more practically and gave me a refreshed look at how I am going to shovel my way out. Also, reminds me of the mistakes I have made to put myself in this position in the first place.
This is great advice and I have been doing some of these steps successfully since getting assistance from CCS.
I am so fortunate to have a great friend who has led me in the right directon to becoming debt free. As a single mom of two daughters, i was barely making it from pay check to paycheck. The debts were building up as the days went buy and at one point, the bank was going to put a lein on my house. I am now working at home part time and can see the debt dwindling down!!
I am in the same situation. I have been looking for a job and no luck. You mentioned that you are working part time from home, i would like to find out whether I could do the same.
I am in the same situation.. It's frustrating, how did you find work from home? Can you help me see if that's something I could do to help out with bills and debt? Tia
Not sure if you are still looking for work from home. I have two suggestions for you if you are. I currently work from home for a company which helps to improve the search engines. The work is fun, but you have to read the study materials and really study hard. The work itself is not difficult but passing the test can be challenging for some people. Here is a link to check it out if you are interested: https://www.leapforceathome.com/qrp/public/jobs/list?uref=1642173e3ce268105816bae2d459f53c
Also, this is my third work from home position since 2004, I found all of the jobs I have worked from home from the Work at Home moms forum. Here is a link: http://www.wahm.com/forum/
I hope this is helpful to you. I know how hard it is to struggle to get out of debt.
I also have another money saving tip that some people might find helpful. Skip the cleaning supplies and just buy white vinegar. The gallon bottles are about $2 or less and they clean everything. I only buy vinegar and castile soap, it saves hundreds a year.
Seeing that I'm doing things right before I even read this. I was a single mom and almost had all my debts cleared but after a failed business for a few years and living off credit cards and no earning. I'm back at square one. Worse off all my husband made such poor decisions with cars, business and personal spending, it left me hopeless. We got kids, house and lots of bills. Earning slow and spending fast, it's Frustrating! Where do we go from here???
Hi Shannon, Treading water isn't fun. If you're doing the best you can on your own and aren't getting anywhere, it may make sense for you to sit down with one of our Credit Counsellors and see if they have any suggestions on how you can move forward. It may be that you're doing everything that can be done, but if they can share some insights or come up with some ideas that may help you, the visit could be well worth your time. There's no cost to speak with any of our Counsellors, and they can even help you over the phone if you prefer.
Great advice....IF YOU CAN GET A JOB of course. I have been out of work since September 2013....and owe money. I'm about to become homeless. I have applied to about 500 jobs in that time. I have an abundance of experience, education, training (IT and GIS), and have had recruiters and employers alike all tell me that my credentials and resume are impeccable. So why can I not find a job? Let's first solve the one job problem before we tackle a second income to pay off debt.
I have asked for feedback from recruiters dozens of times...I either get the same response as above, or simply nothing at all.
Sounds like a really tough experience, and you’re right – deal with one issue at a time. We would encourage you to look into your local employment centre for support around finding work. Once you’re back to work, feel free to connect with us to discuss your debt.
I have 14,000 on a credit line and 69000 left on the mortgage. We will be getting 14,000 soon and wondered if we should put the money to pay off the credit line or pay down the mortgage. What do u think?
Hi Anne Marie, It all depends on your financial situation. Here are some things to consider: 1) Which debt has the highest interest rate? You'll probably save the most money if you pay down the debt with the highest interest first. 2) Do you have a few thousand dollars of emergency savings? If not, consider putting some of the new money aside as savings, or pay down the line of credit enough to give you room to handle any emergencies (like vehicle or home repairs) that may arise. 3) If you're using most of your line of credit, this may be impacting your credit. If having better credit will get you a better interest rate on your mortgage, then this would be an important consideration. You may also benefit from sitting down with a good financial planner. They can look at your whole financial picture, give you the best guidance for this decision, and help you create a clear road map so you can achieve your long-term financial goals.
As a manager at my job, I hear people complaing every year at raise time. I was guilty of this at one time as well. I finally realized complaining wasn't helping so I decided to take a look at my finances. After checking website after website, I decided my first step was to track my spending. Instant raise. We need to see how were spending our money and how to get our money to work for us. I had a line of credit @5.25%, after a little research I learned that I could get a Homeline credit line @ 3.5%. Instant raise. Throw out those weekly flyers, you will only find things that you don't need. Sure, when you want something, then look around when your ready to buy. Put 10% of your pay away, you won't miss it. I have 2 children that I had played competitive soccer and we travelled lots. Pack a lunch, it is better for you and them, as well as your wallet. Join you local buyers club, save on groceries. There is my rant.
Very good advice Ron. You've got a great perspective. With a little work, most people can find at least one way to give themselves a raise. Tracking spending like you did is typically one of the best places to look.
Excellent article! I really support tips #3 and #4. Pay off the most important debts and expensive ones first. There is no need to hold back or wait around to pay off those debts.
There is no need to buy or lease an expensive car right away. Get a used car, it will help you out in the long run.
I was a gambling addict and once was burried in alot of debt. It only took me 2 years to clear all of it. Very easy but you need focus determination and a sound mind. Invest in a decent budgeting software and use it. Sell off old stuff for extra cash and use it as a capital to start your own small business. It can be manythings, look for cheap deals online or your local website newspaper garage sale etc, buy fix and resell or just buy and resell on ebay or craigslist or kijiji. Then look for part time job like 15hrs a week that works with your schedule. Anything from bagging groceries etc. For savings start by eliminating every and all parties, restaurants, bars etc anything that requires more than 5% of your savings. Instead buy cheaper groceries and make your own fancy dish. Be smart. Eliminate friends family or anyone that you feel will not show support or want you to go out etc. If you have kids do groceries take them on picnics etc. Like i said eliminate all going out or anyone linked with going out that will cost you money. If you spend your money on fancy things. Sell those fancy things for cheap it will hurt but will teach you a lesson. No debt is unpayable. You just need to be smart. Money is all around to make. Its just paper man created to get rich. Dont waste your life behind it. Debt is something everyone will have in their lifetime. Its the nature of us but there are so many ways to come out of it. You have to have confidence self esteem and determination if you want to come out of it. I once was in a dark hole but I learned all of these the hard way until i realized this is bullshit im not wasting my life moping around. Do something about it. Ppl here whining about not having a job its bullshit. I worked all kinds of job you name it ive done it. Garbage collector, poop scraper, gutter cleaner just to get started and it helped.
Dear anyone outhere who can help me, i dont know what else i can do. Just hoping someone kind read this.
I am a 32 years old mommy. I have 2 daughters 11 and 5 years old. And im now have to pay the moneylenders about 1000 usd. I dont have a way to repay. I really dont know what to do, even to buy food is hard for us.
I hope God will send me someone that can help me with my debts.
this is my email its [removed]
Hi Nova. Thanks for letting us know you need help. We'll have someone contact you today.