How to pay off debt faster

Quick insights

• Identifying the type of debt you have, and the associated interest rate(s), can help you determine the best way to pay down debt quickly.
• If your main concern is how to pay off debt faster, finding ways to prioritize larger or more frequent payments can help accelerate your timeline.
• Your ability to effectively pay off debt may require thoughtful adjustments to your budget and lifestyle.

Although it might appear counterintuitive at first, debt can be a positive part of a healthy financial life. Taking on debt can help you make big moves such as purchasing a home, buying a car or going back to school. But when your debt becomes so great that you struggle to repay it on time, your personal credit can suffer, along with your peace of mind.

The importance of paying off debt quickly

Many forms of debt include a compounding interest rate, which means that interest could be charged on the interest you already owe. To put it another way, it’s your debt, generating more debt over time. Once your debt begins accumulating it can be difficult to regain ground in a fight to repay it. Because of this, focusing on repaying debt can lessen the amount of interest you owe to your creditors. However, getting out of debt is not an easy task.

Where debt comes from

“Debt” refers to the amount of money you owe, typically to a formal entity like a bank, credit union, hospital, or university. Common sources of debt include credit cards, loans and mortgages.

Types of debt

• Secured debt involves lending situations where there is collateral available to back up the debt. Examples of secured debt would be a mortgage or car loan; if the borrower fails to repay the loan, the lender may have the right to repossess (or take back) the property in question.
• Unsecured debt does not involve collateral. Instead, borrowed money is provided based on a person’s creditworthiness, or their perceived ability to repay the funds. Examples include credit cards and personal loans. This type of debt is more commonly associated with high, variable, and compounding interest rates.

Four ways to pay down debt

There are several different methods to consider when you’re ready to begin dismantling your debt. Keep in mind, the most beneficial way to pay down the debt you have will depend on your personal circumstances and preferences. In this section, we’ll introduce some common debt management strategies.

Debt avalanche method

This method requires paying off high-interest debts first to avoid accruing more interest. It may be a useful tactic for someone with personal loans or credit cards with very high interest rates.

Debt snowball method

This method focuses on paying off smaller sources of debt first for psychological wins that help you build momentum toward larger debts. This can help you keep your eyes on the prize, demonstrating that even large debts can be reduced with a measured, targeted approach.

Debt consolidation loans

These are specialized loans used to pay off individual creditors and consolidate your debt into a single, more manageable payment. This can be beneficial for a person who is having trouble keeping track of multiple payments to different debts.

Balance transfers

Moving debt from high-interest credit cards to a different card with a lower rate can reduce the amount of interest owed. Compare APRs and read the fine print when looking for a new card. You may even be able to take advantage of a 0% APR introductory promotion.

How can I pay off my debt more quickly?

If paying off your debt quickly is a top priority, you should consider what additional steps you can take to optimize for speed.

Make more than the minimum payment

The “minimum payment” on your debt often refers to the bare minimum you can pay without an impact to your credit. This amount, however, may not save you from the threat of compounding interest. While making the minimum payment can help you avoid negative marks on your payment record, it is unlikely to relieve the debt long-term. If possible, make more than the minimum payment if you want to pay off your debt faster and not incur additional interest charges.

Make payments more than once a month

If you’re paid weekly or biweekly, consider setting aside a portion of each paycheck for your debt. Increasing your payment frequency could be a way to break out your monthly goal so that it’s more manageable, or help you budget against other purchases throughout the month. Making multiple smaller payments could also boost your mindset and help you build momentum.

Prioritize debt in your budget

Changes you make to your overall budget could become a major factor in lessening the time you spend in debt. As a first step, set aside time to review your spending habits—you may be surprised at what you find. Reducing less-necessary expenses (such as on entertainment or dining out) could leave you with more funds leftover to devote to your larger goal of getting out of debt.

Look for new opportunities to earn

If you've already cut back on existing expenses but still want to increase your payments, it may be time to seek out ways to grow your income. This could include asking for a raise at work, changing jobs for a higher salary, finding additional work opportunities, or selling off valuable possessions you’re willing to part with.

Avoid accruing additional debt

Paying for expenses with cash or a debit card can help you avoid adding to your debt as you’re paying it down. Unlike with a credit card, the money you spend on a debit card is backed by real dollars in your account. However, it’s important to keep an eye on your account balance throughout the month and be aware of overdraft charges if you overspend.

Resist the urge to splurge

Good news, bad news, or even a paycheck that’s a little bigger than usual could tempt you to indulge in a fun night out or a new gadget. It’s important to think carefully when these impulses come up and look for low- or no-cost ways to mark the occasion. Keeping your financial goals top of mind in these moments can help you avoid derailing your progress.

In conclusion

No matter the size of your debt, working to pay it off sooner rather than later can benefit your bottom line. But the bigger your goal, the bigger your commitment needs to be. If your debt has reached five digits or more, you’ll likely need to commit to a plan of action that requires sacrifices in your budget and an assessment of your other available resources. Splitting your long-term goal into manageable steps, and sticking to your plan, puts you in a better position to break free of debt.