How to get out of debt fast: 10 strategies to consider

Debt can get out of hand quickly. A few indulgent credit card purchases can be compounded by an unexpected car repair or a medical emergency to create a debt problem that keeps you up at night. Getting out of debt, however, is possible, and there are strategies and tactics that can help you learn how to pay off bills faster than you think.

5 financial planning steps to help you get out of debt fast

Before you take steps to define and manage your debt, you’ll need to do some foundational work. These five planning steps will set you up for success.

1. Calculate how much debt you have

You can’t apply a debt-reduction strategy until you have a clear picture of how much debt you have and what form it takes. Start by gathering every financial statement you have regarding debt. This may include credit cards, student loans, mortgages, car loans, medical bills, and more.

You’ll need to see these in one big picture, so put the balances and details of each debt – their interest rate, term, and monthly payment – in a spreadsheet. Next, sort it from highest to lowest amount, or vice versa.

Another helpful step is to label each debt as good debt or bad debt. Good debt is debt that you can pay off and was used in a way that has a positive effect on your life. Examples are mortgages or student loans. Bad debt is high-interest and short-term, with minimal effect on your life, such as credit card debt.

Finally, calculate your debt-to-income ratio (DTI) to see how much of your income is taken up by debt payments. Add up your monthly debt payments, divide the total by your gross monthly income, then multiply it by 100. Here’s an example:

Total monthly debt payments = $2,200 / gross monthly income = $5,000 = 0.44 x 100 = 44%.

This level of debt is nearing the unmanageable level and should be addressed. Lenders generally prefer a DTI under 36%, though some may allow up to 43% or higher depending on loan type.

2. Create a budget

Making a budget lets you see exactly where your money goes each month. This is essential to a successful debt-reduction strategy.

For this reason, you need to include every expense in your budget. Scour recent statements and include everything from your monthly mortgage, car loan, and student loan payment to your cell phone bill, streaming costs, utilities, food, and gas. Some of these expenses might need to be estimated, such as food and gas. Do your best but err on the high side.

Here’s an example of a budget spreadsheet.

3. Build up an emergency fund

It might feel a bit counterintuitive to put money into an emergency fund when you're trying to pay down debt. But having an emergency fund can prevent you from going into further debt – and defeating all your pay-off efforts – if an unexpected expense hits. After all, surprise car repairs or medical emergencies are common reasons for ballooning debt in the first place.

Start your emergency fund with any amount you can reasonably handle and then create a system to add to it each month. Your goal should be to eventually save up 3 – 6 months of essential living expenses.

4. Eliminate unnecessary expenses

Once you have a clear, exhaustive budget that includes all your expenses, it’s time for the difficult part: setting savings goals and cutting expenses to meet them. Here, you need to be strict with yourself and label each expense as a “need” or a “want.” Spoiler: the wants are on the cutting block.

The good news is every dollar you save from cutting your wants is money that can go toward paying off your debt and increasing your financial freedom.

5. Earn some extra cash

If you can’t cut enough to pay down your debt, consider taking on a side hustle to earn some extra cash. Even a few hundred dollars a month can be a significant help in paying down your debts. Plus, extra income has the added benefit of improving your DTI ratio.

10 ways to get out of debt fast

Now that you’ve created a solid foundation, it’s time to build on it with strategies to pay down your debt fast. Here are 10 practical tactics you can start today.

1. Make biweekly payments

Make a half payment every two weeks rather than a full payment every month. This is a painless way to make an extra payment each year. How? By making payments every two weeks, you’ll end up making 26 payments a year. That’s the equivalent of 13 monthly payments. That could help pay off your credit card, personal loan, or other debt faster.

2. Make extra payments

Use that money you cut out of your budget to make extra payments when you can. Even a small amount can help pay off a personal loan early and get you out of debt faster. One caveat: make sure your lender applies the extra payment toward your principal. Some don’t.

3. Round up loan payments

Here’s an easy hack: Round up your payments. Do this to whatever degree you can afford, from the nearest dollar to the nearest hundred. It can make a surprising difference. For instance, if a monthly payment is $376, consider paying $400. Over the course of a year, you’ll pay an extra $288.

4. Ask for discounts

It’s worth a few web searches or phone calls to ferret out any discounts that might be available from your lenders. For instance, setting up automatic payments can often get you a discount on your mobile phone service, internet access, insurance, and car loan bills. Same with signing up to receive paperless statements. Lenders and banks sometimes offer discounts because digital statements save them money in printing and mailing costs.

5. Make a debt snowball

With the debt snowball method, you list all your debts from the smallest to the largest. Make your minimum monthly payments on all except the smallest. For that one, put any extra money you can toward it until it’s paid off.

Next, take the payment you were making on that smallest debt and add it to the payment on the next smallest debt. Keep doing that, building momentum until you are debt-free.

6. Create a debt avalanche

The debt avalanche method emphasizes paying off high-interest debts first. Things like payday loans, credit cards, or auto loans. This way, you pay off the costliest debt first and save money in the long run. Here’s how it works:

• List your debts from highest interest rate to lowest.
• Make the minimum payment for every debt except the one with the highest interest rate.
• Put any extra cash toward the payment on the highest-interest debt.
• Once that’s paid off, use the money you were paying toward it to make extra payments to what is now your highest-interest debt.

7. Gather debt snowflakes

Debt snowflakes are “found money.” This can be a tax refund, a gift from relatives, a rebate, or even just savings you accrued at the grocery store. Put these snowflakes toward your debt.

A good example is the one that comes from paying off debts during the snowball or avalanche method. Say you pay off your first debt in the snowball method, and that payment was $200 a month. That is now a major snowflake you can use to grow the debt snowball.

8. Consolidate your debt

When you have many debts, with different payment schedules and interest rates, it can be confusing. It can also get expensive. A debt consolidation loan can help. Done right, it can lower your interest rate and reduce your monthly payment. This can save you money on interest and help you get out of debt faster.

Here’s an example. Let’s assume you have the following debt: 

Now let’s assume you consolidated these debts into a personal loan with a 10% interest rate and 5-year term. Here’s what the difference would look like (this does not include any fees associated with the consolidation loan) :

Of course, there are many ways to consolidate your debt. Here are some common ones:

• Apply for a personal loan. If you have a high credit score, this might be a great option.
• Use a home equity loan. If you own your home and have some equity, you can borrow it with a home equity loan and pay off your debt.
• Transfer credit card balances to a low-interest card. If you have offers from other credit cards for a low APR on any balances you transfer, this can lower your interest rate and help you pay off your debt faster.
• Consider a 401(k) loan. Taking out a 401(k) loan is allowed without any tax penalties if you do it within the rules of your plan. Before taking this step, make sure you understand the rules or limitations of your plan; different employers have different rules.

9. Negotiate a debt management plan

A credit counselor can help you set up a debt management plan, which allows you and the counselor to work with your debtors – credit card companies or other lenders – to work out a payment plan. This can sometimes get you out of penalties and fees and help you breathe easier and pay off your debt sooner.

However, beware of high setup or monthly fees. It’s best to stick to reputable, nonprofit credit counselors.

10. Settle your debts

If a creditor believes you’re unable to pay off a debt, you may be able to work out a settlement. Sometimes they’ll allow you to pay less than what you owe. However, you’ll probably have to pay the entire amount in one lump sum.

For this to be viable, the creditor must believe that it’s their last chance to get some form of payment before you claim bankruptcy, in which case they could get nothing. You benefit because it could help you avoid legal action or bankruptcy. The choice between debt consolidation and debt settlement is a big one with major implications, so consider all your options carefully.

The bottom line: Choose the debt payoff strategy that works for you

Hopefully by now, you realize that no matter what state your debt is in, you have options. From aggressive payment methods to a debt consolidation loan, you can take control of your debt and find financial freedom. The first step is to assess your budget and decide on a strategy.

Rocket Loans can help you explore your consolidation loan options to transform your high-interest debts into one manageable monthly payment.

This article is for informational purposes only and is not a substitute for professional advice from a medical provider, licensed attorney, financial advisor, or tax professional. Consumers should independently verify any service mentioned will meet their needs.