How to pay off your debts quickly
When you work hard every day, you want to afford anything you want and need. Trouble is… most people fall short. Not necessarily because they don’t make enough money, but because they have huge debts to pay.
From student loans to credit cards, debt mounts to a point where you can’t imagine how you’ll ever be debt free.
And I get it.
With so many things to pay for, you may have thought it’s impossible to be debt free unless you win the lottery in your career or literally.
The good news is, paying off your debts is much easier than you think.
I’ve discovered five steps, that might sound boring and un-fun, but I promise you - it'll make a huge difference to your life.
STEP 1: Tally up how much debt you owe
Burying your head in the sand isn’t going to make your debt go away. In fact, the longer you stay in debt, the harder it is to pay everything off.
Get clear on how much you owe, so you can make a plan.
Tally up everything you owe from overdrafts, credit cards, student and consolidation loans.
Write down a note of when everything needs to be paid off by. For example, does a benefit of a credit card being interest free end on a particular day? Or will you pay off your consolidation loan in a certain number of years.
During this reflection, flag debts that have high interest rates and will be more expensive to pay off.
After doing this exercise, you’ll be able to figure out the fastest and easiest way to pay down your debts.
You can do this by grouping your debts into three brackets.
Priority debt: High interest rate fee debt such as large credit card balances and consolidation loans. This needs to be paid off first and as soon as possible.
Standard debt: Small, manageable debt that can be paid off quickly (i.e. small credit fees or even money owed to friends)
Not urgent debt: Debt that's not incurring interest and can be paid off at a later date.
When you pay down your debts in this order, you have less interest rate fees to pay and less debt to pay off overall.
STEP 2: Spend your spare income on debt crushing
It may be tempting to spend all your cash on everything but your debt.
But the fastest way to pay down your debt, is to pay more than the minimal payment required. The more you pay down, the lower your interest rate fees and the sooner you pay down the money you owe.
The easiest way to do this is to calculate roughly how much spare cash you have left after you pay for essential things every month like rent and food.
If you’re not sure what your overall monthly expenditures are, try financial planning apps like Yolt to track your income and spending. They are great at giving you insight into your monthly spending.
Once you know the figure use the following calculation:
Total monthly income - total monthly expenditure = Spare cash
If you hardly have anything left, or worse yet are in the red, take a second look at you expenditures and begin cutting back on money drainers.
Money drainers are things you buy that aren’t essential for living and breathing. They are nice to have but don’t make a considerable difference to you life. Try and have as few money drainers as possible because the more you have, the more money you are losing to unnecessary purchases.
Once your expenditures are less than your earnings, spend some of your spare cash on the debts you need to repay.
And remember, the more you pay down at a time, the sooner you’ll be debt free and you’ll be able to save for new things like a house, business, vacations or income generating assets.
STEP 3: Make additional income
If your income is 100% salary based and you don’t see yourself increasing your salary any time soon, it can take what feels like forever to pay down your debt. After all, there are only so many ways you can cut costs.
That’s why one of my favourite things to pay off debts is to increase your income. The more money you make, and the wiser you are with keeping your costs low, the sooner you’ll pay off your debts.
Think about how you can make an additional income. This could be from working overtime, achieving your targets to get a bonus, getting a second part time job for a limited time only, getting paid for public speaking or freelance consulting projects, or by creating an income generating side hustle (note: a side hustle is small business that brings you additional income from doing something you love).
Get creative and google ways to make an additional income. You’ll be surprised how much more money you can make.
The fastest way to increase your income and net worth is to invest in income generating activities.
And that's it.
I'd love to know what you think. What's one action you'll take to pay off your debts? Leave a comment below.