How do I pay off my debt (quickly)?

When it comes to taking control of your finances, getting rid of credit card debt and other high interest rate debts is SOO important. Trying to get ahead with your finances whilst having debt is like trying to swim the Atlantic with a 100kg weight attached to you. You're got a dead weight dragging you down. Time to ditch that anchor!

​Alan is almost 100kilos, could you image having to drag him whilst swimming?

Debt happens - let the Donegans help you back out!

If you have debt, you're in the right place!  This is a how-to article taking you step by step through the quickest way to pay off your debt. Let's get into it...

How to get out of debt: ​The debt attack strategy

Alan and I like to get things done quickly.  Once we decide to do some thing we like to find the fastest way from point A to point B.  This is our guide to the fastest way to get out of debt for you.  The image below shows the overall strategy, then read on for an explanation of each of the steps.

We've put some ideas under each step - do all of the steps but you don't have to do ALL of the additional ideas. Don't get overwhelmed, just pick a couple to start with and get some momentum. Progress and taking action trumps perfection every time!

Watch along!

We made you a video to take you through each of the steps.  It also include an example to bring it to life! Watch the video, pause it at each step and apply it to your situation.

​Or read on for more detail.  Or do both!  We get geeky and excited when we have a mission and like to do it all!  

What type of debt are we talking about here? 

We're talking about *expensive* debt here, anything with an interest rate of more than 5%

You're probably wondering about student loans and how/when/if to pay these off. Read on to the end for our thoughts on those.  

What we aren't talking about is your mortgage.  Mortgages are traditionally lower interest rates and take time to pay off.  This is all about store cards, credit cards, overdrafts and other unsecured debts. 

Let's get into the practical steps

​1. Get crystal clear on what your debts are

Clarity is power here. You need to understand what debt you have before you can come up with a plan for paying it off.

WARNING! This step *might* bring up some emotion. You might be annoyed at past you for getting you into this pickle. You might be disheartened at how much debt you have. You might be pleasantly surprised and relieved that it wasn't as much as you thought. Expect the emotion. Expect stuff to come up. Whatever the emotion you feel, notice it, breathe through it and move onto the next step. We got you! And the final step of the process is going to make sure you're never in this situation again. Ok, onto the first step....

For each of your debts (car loans, store cards, credit cards, personal loans...), find the paperwork and get clear on:

• Balance (how much you owe)
• Interest rate
• Minimum payment
• If the deal changes after a certain time (e.g. pay nothing for a year), find out what the payments will be, what the interest rate will be and when it changes. Put a reminder in your calendar of when the deal is going to end so you can reassess

​
Put all the debts in a table like this one.

Include 0% cards, this is a temporary situation. It won't always be 0%. You have to pay these off too. You can't just keep shifting it to 0% cards forever. Your calendar is your friend. Set a reminder a month or so before the deal ends so you can work out what you want to do with that debt and so you won't be surprised when they start charging you interest!

2.Can you pay off any of the debt immediately?

There are some ways you might be able to raise some cash straight away.  Can you sell any liabilities? 

Examples:
​

• Holiday home
• Car that’s barely used
• Motorbike
• Pleasure boat
• Old boardgames in the cupboard
• Old mobile phones that have collected in the draw

 
We’re not telling you that you have to give it up forever. Store it on gumtree/craigslist until you can afford it. What we mean by this is sell it on these platforms (or something else like Facebook Marketplace). You can always buy it back (or one very similar) when you're in a better financial position.
 
This has a double whammy because you'll get the money from selling the liabilities AND you'll stop paying for them each month.
 

• Can you sell any belongings you don’t use? Are you using that treadmill you bought as a very expensive clothes horse? Sell the stuff you have in the house and the garage. In the UK you can use Ziffit or Amazon to sell second hand books and DVDs.
• Do you have a storage unit full of forgotten belongings? Sell that stuff AND stop paying the storage fees
• What savings do you have? Banks make money by lending at a higher rate than they'll give you on your savings. KEEP EMERGENCY FUND of £1,000. (What is an emergency fund?) Use any other savings to pay off your debt.

We are always amazed at how many people have thousands of pounds of debt at a high interest rates like 30% plus and then £5000 sat in a bank account earning 3% interest.  You are literally funding the banks by doing this. 

Keep the £1000 emergency fund but use anything else you can to pay off the debt as quickly as possible. 

---

3.Can you increase monthly repayments?

Time to trim the fat!

​You need to prioritise paying off your debt and stop going on expensive holidays, stop eating out, stop getting takeaways and stop buying the latest iPhone. Stop investing in the stock market (for now), until you've paid off your expensive debt.

If you're doing this, you are essentially borrowing money to invest in the stock market and this is NEVER a good idea.

How much a month can you put towards paying off the debt? How might you reduce your spending elsewhere or increase your income? Widen the gap between income and expenses as much as you can! Trim the fat

How to increase income:

• Read Alan's 10 ways to increase your income article and pick one idea to implement
• How might you change your living situation to increase your gap? e.g. Get a room mate/lodger. In the UK the rent a room scheme allows you to earn £7,500 a year (£625 a month) TAX FREE by renting out part of the home you live in
• ​Start a side hustle. Check out Alan's Rebel Entrepreneur podcast which is all about how to start a business without going into debt. Start with the episode 5 ways to start a business with no debt
• Use the gig economy (Deliveroo, Uber, Flex etc.)
• If you have a partner, first of all tell them about the debt. Secondly, they might be willing to help and put some of their income towards the debt.​

How to reduce spending
These are some ideas to reduce spending.... some are more extreme than others! Pick the one(s) that work for you.  Remember this is a menu of ideas and you don't have to do them all.  The further you can reduce your expenses the quicker you can get out of debt.  

You may have already done a lot of these and that is ok too.  Go back and look at increasing income if you can't reduce expenditure.  There is no ceiling to how much you can earn, but there is a floor to how much you can reduce your expenses!

• Spending by category. Go through your spending category by category. Where can you reduce spending? We use moneydashboard to track our spending.
• Streaming platforms. You can only watch one at once! Cycle through them rather than having them all at the same time. e.g. have Netflix for a month or two to watch the shows on there, then switch to Amazon Prime and so on.  Or share with friends.  You don't need them all. 
• Transport. Could you downsize your car? Have you optimised your car to spend less? Do you even need a car? Multiple cars? Check the insurance price, use a price comparison tool.  Could you swap the car for a bike for a year to get out of debt?
• Utilities. Compare to the average in your area. Use comparison sites to check you have the best deal.
• Insulate your home. In some areas/countries there are government schemes to help you do this. Check if there's one in your area
• Remove accommodation costs. Don't have any kids or dependents? Ready to go extreme with your living situation? Check out Property Guardians in the UK 
• Food shopping
  • You *think* you're an Aldi shopper and just get a few bits and bobs in Waitrose but are you really? Track it for a month and find out.
  • Make a list before you go to the supermarket and only buy what's on the list
• Other spending
  • What subscriptions could you cancel and put towards the debt instead. We coached someone who had an £18.99 gym subscription they weren't using. When they put that towards their credit card debt it saved them £514 in interest and they paid if off 10 months quicker. 
  • Stop expensive hobbies (at least for now). Be creative with ways to have fun for free or for much cheaper
  • Make gifts for other people instead of buying them until you are out of debt

The whole purpose of this section is to do what is needed to create a gap between your income and spending.  if there is no gap, i.e. you are spending everything you earn every month then you will never pay that debt off.  not only will you never pay if off but it compounds against you. 

​We met one family on Rebel Finance School that were making minimum payments on their debt but the interest rates were so high that they would have never paid it off.  We need to get you free of this debt. 

4.Reduce interest rates

Can you negotiate lower interest rates with your credit card company or get a 0% balance transfer?

Could you get a cheap(er) personal loan?

​BEWARE commercial debt management companies. They are there to make money out of you

The best way to do this is to call them on the phone and talk to them.  Tell them you can't afford the repayments.  Tell them the debt is crippling you.  Tell them you are going to need to move else where to get on top of it  Ask for a reduction in interest rates and then go silent.  SILENCE is so powerful when negotiating. 

You might be thinking "Can I really negotiate with banks? credit card companies?"   The answer is YES!  You have more power than you think you do.  It might not feel like it right now but you do.  

We worked with one couple that called the bank about their overdraft that was at a crippling 49% interest rate and challenged them. The bank immediately put the rate to 0% and gave them time to repay it.  This saved them years off their repayments and thousands of pounds

Be prepared for a "NO".  They aren't all going to play ball, but you don't get hat you don't ask for.  If you don't ask for a reduction you won't get it.  Call them all, talk to them.  Be brave and take these leaches on.  They are sucking the financial life blood out of you.  They are literally living off you financially.  

Time to remove the financial leaches and look after you.

5.List all your debts in descending order of interest rate (highest first)

NOT in order of balance. This way you will pay the least amount of interest. If you have multiple 0% cards, put the deal that ends soonest first. Check out our YouTube video for a detailed example of how to do this.

6.Put as much as you can towards paying off the first one on the list

​Pay the minimum payments on all debts AND put any and all additional cash towards paying off the first debt on the list.  The key is to attack the debt with the highest interest rate with all your resources.  Tackle that sucker!

Apply all of your financial resources and focus to destroying the debt with the highest interest rate.  Some debt strategies talk about tackling the debt with the smallest balance first and this is mathmatically not the best way to tackle debt.

Doesn't matter the balance, what matters is the interest rate.  Tackle the one with the highest interest rate first!

7.Keep momentum

When you pay off a loan or card, roll that payment into the next one on the list. Never lower overall repayment amounts.  Keep rolling each one you pay off into the next one.  This build momentum and helps you tackle the debts quicker and quicker.

Always do this in order of interest rates.  So you pay off the debt with the highest interest rate first.  The one below that has until this point been set to minimum payments.  Now it is time to roll what you were paying to get rid of the highest one into paying the second highest interest rate one. 

You do this in order as you go down the list.  It is a simple strategy but it is mathematically the most efficient way to pay off your debt.  

8.Keep going until you are (expensive) debt free

​Celebrate your freedom!  Maybe have a picnic or do a little jig in the kitchen. Freedom has never tasted so good!

Maybe post it in the Rebel Finance School Facebook Group and tell us all about how it is going and what you are up too!  Progress should be celebrate.  

There is no shame in having got into debt in the past.  These things happen.  All we want to do is help you tackle this in the moment and get free now. 

9. How are you going to make sure this never happens again?

The system is out to get you.  There are teams of highly educate people out there who's job it is to persuade you to go into debt.  They spend all day every day telling you that you deserve it for working so hard or that you only live once so put it on the credit card.  

Don't fall for this advertising.  You don't deserve debt.  And you do only live once so don't spend it in debt, in servitude to big financial companies working to pay off your loans. 

Here are some ideas for how you could stop this ever happening again:

1. Store Cards: these things are evil! GET RID OF THEM.  Cut them up.  Ceremonially burn them on a fire in the garden and chant the words Freedom as they burn.  Have fun. 
2. Credit cards. Do you trust yourself with credit cards... if not, cut them up!
3. Emergency fund: Make sure you have an emergency fund. Read all about emergency funds here
4. Liabilities: Sell any big liabilities you have.  Swap out that big car for a smaller car.  Sell off things that cost you money monthly and reduce your outgoings. 
5. Change your spending strategy:  This is so important.  If you are a big spender on Amazon, change your strategy.  You are no longer allowed to purchase on the same day you have the idea.  For example you see something you want on Amazon.  You add it to your cart.  Now wait a week and see if you still want it.  If you still want it in a weeks time then buy it.  If not then kick it back out of your cart. 
6. Monthly finance meeting. This is a critical part of good money management.  Being on top of where your money is going and whether you are going in the right direction with your finances or not! Read our article How to track your finances. 

Fun spreadsheets

This is the tool Katie uses to work out what order you should pay off your debts and how long it will take: https://www.vertex42.com/Calculators/debt-reduction-calculator.html
​
​​When it asks you to choose which strategy you want go with "Avalanche". This puts the debts in descending order of interest rate.  This is the mathematically most efficient way to pay off debt. 

​Student loans

Student loans - UK
People always ask us whether they should pay off their student loan before they start investing. This is a complicated question! The interest rate you pay depends on when you took the loan out and, for people who went to university in more recent years, what tax bracket you are in.

Money Saving Expert has some excellent articles on this

And here's the official government website for UK Student Loans

People often ask us about ways to make their earnings look lower so that they don't have to pay off their student debts. (In the UK, repayments are based on how much you earn and are wiped out after 30 years.) To me, this feels like cutting your nose off to spite your face. Playing a game to try and minimise your earnings is the wrong thing to focus on if you're aiming to sort your finances out. Focus on maximising your earnings and paying your debts off so that once those are gone you can quickly accumulate wealth.

You are NEVER worse off earning more.  The more you earn the quicker you can get onto more exciting things after getting rid of the debts.  

As ever, this is NOT binary. If you have some savings that are earning less than the interest that's building up on the student loan, consider paying off at least some of the loan. For example, if you are not yet earning enough to have to pay anything back but you are earning some money and have a reasonable gap between your earnings and expenses, consider paying down the interest that's building up so at least it's not compounding against you. 

CAVEAT: this depends on age and amount of debt. If you're 25 with £30k of student debt, just get on with it. If you're 50 with £300k of student debt we need to think through the options. Of course this is after more expensive, higher interest rate debt like credit cards.

Don't take our word for it, read the Money Saving Expert articles and watch his videos and see what you think.

Student loans - USA
Choose FI is a financial independence podcast whose ex co-host Jonathan had a LOT of student loan from studying to become a pharmacist. This article talks you through the things to think about when you're considering paying off your student loan: https://www.choosefi.com/paying-off-student-loans-vs-investing/

Further help on debt

This article from Money Saving Expert has some additional tips and ideas for how to pay off debt as quickly as possible: https://www.moneysavingexpert.com/loans/debt-help-plan/ 

Forgive past you and get on with it

The best time to get on top of your finances is right now! Now is the time to forgive past you for putting you into this pickle.

You might feel a bit down when you've looked at how much debt you have. You might be thinking your debt is going to take a long time to get rid of and feel overwhelmed by it and want to run away and hide. I feel that way sometimes!

Remember, the time is going to pass anyway so you might as well make a start now. We wrote an article about starting something that seems insurmountable that will help you and inspire you to get going.

Please let us know how you get on and tell us what you think of the article.

It's up to you!

​​This is how we think about debt. As always, don't take our word for it!

​Do your own homework and research and think about whether this is right for your circumstances. We are not financial advisors. You are responsible for your own financial future. Read our full disclaimer here.

Rebel Finance School

Alan and I write these articles to help you get on top of your finances.  It is our mission to help you.  

If you want help with every aspect of your finances, not just how to get out of debt then come on Rebel Finance School. 

You still have to do the work.  No one is coming to save you. 

But there is no better time for you to take control of your finances and your financial future than today. 

Check out Rebel Finance School for more free support.