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How To Pay Off Debt Fast: Strategies That Work

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For many of us, paying off our debt is a key financial goal.

Whether you have a couple of consumer loans or more significant business or property debt, paying it off can save money in the long run and free up your cash flow to focus on other things.

But how do you do it? Here are a few strategies that can work to pay off debt and get you on track to regaining your financial freedom.

Understanding your debt

Know what you owe

The first step in getting your debt paid off is to make sure you have a good understanding of what you owe, to whom and what interest rate you are paying on it. Start by making a list of all your debts, including credit cards, personal loans, hire-purchases, buy-now-pay-later and mortgage borrowing.

Calculate your debt-to-income ratio

How do your debt repayments compare to the income you have coming in each week or month? If you’re starting to find that most of your disposable income is taken up by debt repayments, it could be a sign that you need to take more urgent action.

Identify high-interest debt

Many people choose to focus first on paying down their highest-interest debts because these cost the most to have hanging around – and getting rid of them can mean bigger savings.

Consider debt consolidation

If you have a few different debts and loans, it might make sense to consider debt consolidation. This is where you combine them into one new loan. It can sometimes mean you can access a lower interest rate or make the loans easier to manage from a life admin perspective because you only need to worry about one repayment. This should be done carefully, though. If your debt consolidation loan is for a longer term or at a higher interest rate than your existing debt, it can end up costing you more.

Creating a debt repayment plan

Develop a personalised debt repayment plan

Start taking action towards getting debt free by devising a plan based on your own situation and circumstances. You might start by doing a budget of your income and obligations to work out what money, if any, you have available to spend on debt repayment beyond what you currently have allocated.

Set realistic goals

From there, you can work out how much you could increase your debt repayments by and how long that might mean it takes to clear your debt. Keep your goals realistic – you need to be able to sustain the payments until the loan is cleared. While it might be tempting to promise yourself you’ll put all your spare money on to your loans and live on the bare minimum until they are paid, that can become hard work quite quickly.

Prioritise needs over wants

When you’re doing your budget, be honest about what you need to spend money on and what is more of a luxury. Can you find cheaper ways to provide some of the luxuries you enjoy in your life?

Consider debt relief loans

If you’re starting to find your debt is hard to manage, or you’re having trouble paying your bills, it could be a good time to think about other options, such as debt relief loans. We can help you work out what might be available.

Prioritising your debt

Focus on high-priority debts

As we mentioned earlier, you might choose to pay off high-interest debt first because it provides an opportunity to save money. You may also need to prioritise any debts that are urgent, particularly if there’s a risk you might fall behind on your payments.

Use the debt snowball method

Some people choose to pay off their smallest debts first to build momentum. This method gives you a series of wins that can be motivating to get you going to your bigger goal.

Consider the debt avalanche method

This refers to paying off high-interest debt first. It’s generally the most money-saving way to pay off debt.

Check our blog for details: Avalanches and Snowballs: Strategies to Pay Off Debt

Make minimum payments

Whatever strategy you choose, you’ll need to maintain the minimum payments on your other loans so that you don’t fall into arrears or end up being charged late payment fees.

Make extra payments

Whenever possible, make extra payments towards your loan principal. This can come from sources such as work bonuses, tax refunds, or savings from cutting back on non-essential expenses. Reducing the principal balance means less interest accruing, and your loan can get paid off faster. Be sure to check with your lender if there are any penalties for making additional payments, and if not, put that extra money to good use.

Round up payments

An easy way to pay off your loan faster is by rounding up your repayments. For example, if your monthly payment is $265, consider rounding it up to $300. This small increase adds up over time and helps you pay off your loan sooner. By making these modest increases, you can chip away at the principal balance, hopefully without feeling a significant impact on your monthly budget. If you plan to do this, check whether paying off your loan early will attract any additional fees and whether your lender will allow you to adjust your direct debit payment schedule.

Refinance your loan

If you have very high-interest debt, for example, there may be options to take out a new loan on more favourable terms to pay it off. However, you’ll need to check what fees might be associated with the refinancing and whether any penalties could apply to early repayments. At better finance™️, we can help you look at your options and determine what might be appropriate.

Consolidate debts

If you have multiple loans, you could consider consolidating them into one loan. This can simplify your repayment process and, depending on the interest rate available, potentially reduce your overall interest, making it easier to pay off your loans faster. Be cautious, though, and ensure the new loan doesn't come with additional fees or extended terms that negate the benefits. The better finance™️ team can talk to you about how consolidation might work for you and what different options are available.

Managing your finances

Whether you’re just starting out on clearing your debt or you’ve been at it for a while, it’s probably a good idea to take some additional steps to manage your finances.

This may reduce the amount of money you need to borrow in the future and can help you feel a lot more in control of your money life.

Take control of your spending: If you haven’t already, draw up a budget to show you where your money is going each week or month. There are apps that can help with this, too.
Cut expenses: As part of that process, you may identify places where you can cut spending. That might give you more money that can be used to pay debt down or put into savings once your debts are cleared.
Negotiate bills: Don’t set and forget the payments that you make regularly. By shopping around or even just asking for a better deal from your current provider, you may be able to save money on anything from your mobile and internet bills to your insurance.
Cancel subscriptions: Check whether you’re paying for subscriptions to apps or services that you’re no longer using and cancel them. It might be time to be realistic – are you really using all those fitness apps you’re paying for? Sometimes, it’s possible to find free alternatives.
Cook at home: You might be able to save money by cooking more of your meals at home, particularly if you work off a meal plan and shop carefully. Learning to make great coffee at home could also be a money-saver.
Increase income: Spending is one half of your budget, but the other is the money that you have coming in. Can you increase your income? That might mean setting up a side hustle, monetising a hobby, taking a second job, or just regularly selling things that you no longer need.
Use the 50/30/20 rule: This is a split that works well for lots of people. You allocate 50 percent of your income to your necessary expenses, give yourself 30 percent for discretionary spending and 20 percent for saving and debt repayments. You can tweak the percentages to fit with your individual situation.

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Avoiding debt traps

Be cautious of predatory lenders: If you’re looking at your options, you might come across lenders offering to give you a helping hand. But be careful of those that charge high interest or extra fees. At better finance™️, we can help you find trustworthy finance and ensure you know all the fees, interest rates and other terms that might be involved in the loan.
Avoid debt relief scams: Be wary of companies that promise to eliminate debt quickly or easily. There are few shortcuts to pay off debt, except for finding ways to lower your interest rate and making additional payments. Check that anyone you’re dealing with is registered on the Financial Service Providers Register and is licensed to provide financial advice.
Read the fine print: Understand the terms and conditions of any loan or credit agreement before signing. Lenders are required to give you all the information you need about their fees and rates.
Seek advice: Consult with a financial adviser or credit counsellor before making any major financial decisions. At better finance™, we are here to help and can answer any questions you may have.

Staying on track

Stay committed to your debt repayment plan: It’s common to start with a lot of energy, but then find your motivation lags a bit as you go along with your debt repayments. It can be a bit of a process, and remaining committed and motivated will be important to get you there.
Track your progress: Regularly check in to see how far you’ve come. This can help if you’re starting to lose your momentum. You could even develop a visual aid that you put somewhere in your house to monitor how you’re going.
Celebrate milestones: It might help to celebrate or give yourself a reward at certain milestones. This gives you something to look forward to that might be a bit more accessible and immediate than simply your goal of getting debt free.
Seek support: Share your goals with a friend or family member and ask for their support. This might have the added benefit of helping you feel accountable to someone else, who might ask how you’re going from time to time.

Achieving financial freedom

Once you’ve paid off your debt and are a step closer to financial freedom, it’s time to enjoy it and set yourself up for financial wellbeing in the future.

Enjoy the benefits of debt-free living: Take some time to reflect on the peace of mind that you’ll probably feel when you no longer have to worry about making sure you have the money for repayments coming out of your account.
Build an emergency fund: Save three to six months’ worth of expenses in an easily accessible savings account. Many experts recommend this as a suitable amount to have saved to ensure that you don’t have to fall back on relying on debt if something unexpected happens.
Give back: You might choose to make charitable donations to your community or a cause you believe in when you have money to spare to do so.

Conclusion

Paying off debt can make a big difference in your life. There are lots of ways to get started, wherever you are in your financial journey. If you need some advice or just have questions you’d like answered, the team at better finance™ is here to help.