FinanceBuzz reader, Sarah, asks:
How can I get out of debt fast, even when I have a lot of little debts?
I know this story all too well. That was my situation just a few years ago.
When you’re buried under a pile of debt, paying it off can seem impossible.
Having significant debt – even if you just have a pile of little debts – can be overwhelming and stressful.
That’s why making a plan to face it head-on and eliminating it is crucial to your overall emotional and financial health.
Becoming Debt-Free (how we did it)
My husband and I are no strangers when it comes to debt.
We've had student loans, car payments, credit cards, personal loans, and, well – you name it, we had it.
We finally started to take our money seriously when we nearly purchased a large home we couldn’t comfortably afford.
We reached a point where we became sick and tired of not sleeping at night because we were worried about that impending large debt, so we took the opportunity to run away from the home purchase when the inspection showed mold (and lots of it). We came away from that experience with a new financial outlook and a commitment to live debt free.
But living debt free meant we had to face our debts and eliminate them.
We had both big and little debts to tackle at the time.
But after our nearly catastrophic home purchase, we weren’t scared to face them. We quickly made a plan to pay them off once and for all and stuck to it.
Little by little and month after month, our balances dwindled and our stress disappeared.
Eventually, we paid our last debt and felt free for the first time in our lives.
We were free from worry...
Free to do whatever we wanted...
Free to celebrate our new lives...
(without the stress of debt hanging over our heads).
Even if you just have a bunch of random little debts – debt is debt.
And getting it paid off will put you on the fast track to a healthy emotional and financial future.
Some people go the balance transfer credit card route to pay off their debts (kudos to them if they can make it happen!), but for today, let's take a look at the other popular DIY methods to eliminate debt.
The Most Popular Debt Elimination Strategies (and what we used)
When it comes to debt elimination strategies, these two popular methods will get you to the same endpoint.
The Debt Avalanche Method
The Debt Avalanche is a debt repayment strategy that eliminates your highest interest rate debt first.
When using the Debt Avalanche method to knock out your debt, you’ll be paying the minimum payments on all debts except for the one with the highest interest rate. After that debt is eliminated, you’ll take the money you were using to pay that debt and roll it onto the next debt with the highest interest rate.
You’ll eventually become debt free using this method, but losing motivation could be a major issue along the way. I say this because, if your highest interest rate debt also happens to have a high balance, you might not feel like you’re making much progress month to month.
Ultimately, though, using the Debt Avalanche method will guarantee you’re paying the least amount of interest on your debts.
The Debt Snowball Method
The Debt Snowball is a debt repayment strategy that focuses on eliminating your smallest balance debt first, regardless of interest rate.
With this method, you’ll pay the minimum payments on all debts except for the debt with the smallest balance. After that debt is eliminated, you’ll take the money you were using to pay that debt and roll it onto the next debt with the smallest balance.
The Debt Snowball is all about quick wins and staying motivated.
It’s also the method my husband and I used to get rid of our debt.
Yes – by using this method you’re going to pay more interest on your debts.
However, being able to knock out debts quickly and see your progress are highly motivating factors. And if you stay motivated and actually eliminate your debts, it’ll be worth the extra few hundred dollars you spend using this method, at least it was to us.
Debt Avalanche Method vs. Debt Snowball Method
So, which method is better – the Debt Avalanche method or Debt Snowball method?
Both ways genuinely help you become debt-free, but we chose the Debt Snowball method since it kept us motivated to continue moving forward.
Seeing the progress of wiping out our little debts, all the way up to our bigger debts, really helped us stay focused.
If you don't think you need that extra motivation to keep your eyes on the prize (prize = paying off your debt), then the Debt Avalanche method may be a better choice for you (and could save you a few months worth of interest payments).
How To Pay Off Out Debt Fast and On Your Own
1. Write Down All of Your Debts. Determine how much debt you are carrying
2. List Balances and Interest Rates. List all balances, interest rates, and length-terms of all debts including student loans, credit cards, cars loans, etc.
3. Choose Your Debt Elimination Strategy. Decide which method you'll use to get rid of your debt.
4. Create a Budget. Sticking to a budget will help you free up money to put toward debt repayment.
5. Stick To Your Budget. You created it, now stick to it! This is a lifesaver, I swear.
6. Eliminate Your Debt. Using your chosen debt elimination strategy, take down your debt like a boss.
By making a commitment to tackle your debt and creating an actionable plan to get it done, you’re far ahead of most normal people.
So if you ever become jealous of "The Joneses" again, remember, they’re buried in debt with enormous stress and probably not sleeping well at night.
Enjoy your debt freedom journey.
You'll have sweet dreams once it's all paid off and done!