On the one hand, getting out of debt is straightforward:
- Spend less
- Make more
- Put the difference towards debt repayment
While these steps work, the journey to becoming debt free is not a straight line.
Getting out of debt takes work. Not only must you make changes to your habits and actions, but you must also change your mindset. This is much easier said than done.
But the rewards are worth it.
To help you reach your goal, I’ve put together a 6-phase process (with 27 ideas) for eliminating debt as fast as possible.
Phase #1: Get Organized
To know where to go, you first must know where you are. Finding out who you owe, making a budget, creating a net worth statement and listing your debts allows you to make better decisions today and in the future.
#1. Find out who you owe
The list of people you think you owe vs. the list of people you owe may not be the same. That’s why step # 1 is to look at your credit report to see exactly who you owe.
The fastest way to do this is to use a free site called Credit Sesame. When you sign up for Credit Sesame, you’ll get a list of who you owe money to according to your TransUnion credit report.
Credit Sesame will then organize your debts by:
- Account type (home, auto, credit card, etc.)
- Account balance
- Minimum payment due
- The interest rate or APR
This is vital information you’ll need to develop your plan.
#2. Make a budget
You must have a plan for your money. You can’t wait until the end of the month to see what’s left over.
In other words, you need a budget.
But let’s make it easy. After all, it’s 2018.
Here are a few recommendations that make tracking your income and expenses effortless:
- Truebill (Free) — ideal for people who manage their life on their phone.
- YNAB (Free Trial then $6.99/month) — ideal for those who want a community of people to help them get out of debt
- Tiller (Free trial then $5/month) — suitable for people who love spreadsheets
#3. Prepare a net worth statement
Once you have your budget, it’s essential to get a snapshot of your current financial picture. A net worth statement is merely a listing of the assets you own and the debts you owe.
You can use a free template, such as this one from Microsoft.
#4. List your debts
Debt comes in different shapes and sizes. Interest rates, fees, penalties, and minimum payments are just a few of the things you must learn about your debt.
Take the information you gathered when signed up for Credit Sesame and insert into the attached spreadsheet.
Resource: Debt Reduction Spreadsheet
Phase #2: Mindset
The journey to paying off debt can be a long one. Getting some help along the way is important. Use these tools and resources below to sustain your motivation.
One of the hardest aspects of getting out of debt is getting on the same page as your spouse, friends, and family. If you’re in a relationship and one partner doesn’t want to change–it makes it that much harder. If your friends want to go out and spend money–it can become quite frustrating. Dealing with these situations head-on is important.
#6. Read Success Stories
Since only 20% of American’s are out of debt, it’s unlikely you’re going to come across success stories in everyday conversation. So, you’re going to have to seek these stories out.
Resource: Get Out Of Debt Success Stories
#7. Read a book
Books (from the library or borrowed from friends) can help you build the motivation and make better decisions. The book often cited as the inspiration to getting out of debt is Dave Ramsey’s Total Money Makeover.
Resource: The Total Money Makeover
#8. Listen to podcasts
Beyond books, podcasts can also help sustain the motivation to pay off debt. A good starting point is The Dave Ramsey podcast. On every episode, Dave has a guest on who completed their debt free journey perform a “debt free scream.” It can be highly motivating imagining yourself in that situation.
Resource: Dave Ramsey Podcast
Phase #3: Prioritize Your Debt
You’ve gotten to know your finances; you have the motivation to get started–now it’s time to start paying off your debt.
Here’s an excellent place to start:
#9. Decide which debt to attack first
Use the debt snowball method to begin paying off your smallest debt first.
#10. Calculate how much extra to pay off that debt.
You made a budget, right? Here’s where your budget comes in handy. With the gap between your income and expenses, put ALL of it toward your highest priority debt. Qoins is an app that can help you do this automatically, by rounding up your purchases and applying the spare change to your debt (read my review).
Phase #4: Decrease Your Expenses
Now it’s time to cut expenses even more. The larger the gap between your income and expenses, the faster you’ll pay off debt.
#11. Shop For Your Insurance
Rates from one insurance company to another can sometimes vary up to 50%. That’s why it’s smart to check your rates at least once a year.
The easiest type of insurance to shop is your auto.
Use a site like Esurance, which takes only a few minutes to get a quote, to see if you can save.
All it takes is a few minutes. So, with ease, you know whether to continue shopping around or if you’re already paying the best price.
#12. Stop Paying Fees
Get a bank that doesn’t charge excessive overdraft fees and has a nationwide network of free ATMs.
#13. Don’t Hoard Cash
Since you’re in debt, any cash that’s sitting around is costing you money.
A good rule of thumb is to keep $1,000 around for emergencies. Then, put anything over and above into debt payoff.
#14. Trim your Subscriptions
Monthly subscriptions add up.
Fortunately, there’s a free money-saving tool call Trim that analyzes your accounts to find recurring subscriptions and determine where you can save more money.
By using Trim, you can:
- Find out how much you’re paying for each subscription
- Cancel each subscription with a simple text message to Trim
For subscriptions you don’t want to cancel, such as internet, Trim negotiates your monthly rate so you can save money.
#15. Lower Your Utility Bills
Here are a few ways to start lowering your utilities:
- Winterize Your Windows
- Get LED lights.
- Minimize temperature change of house compared to outside. In the winter, set the temperature lower. In the summer, higher.
- Use a low-flow shower head
- Weatherstrip all doors
- Lower the temperature of your water heater
- Add insulation
- Take quicker showers
- Use smart power strips
- Use time delays. Energy rates rise when usages are highest. So, if your dishwasher or washer machine offers a time delay, set them to run in the middle of the night.
#16. Use Coupons
Never used coupons before? I didn’t either until I got the iBotta app. The Ibotta app is a great way to get a few dollars back every time you shop.
Ibotta offers cash back on a huge list of items you’re probably already buying like eggs, milk, bread, yogurt, etc… This can be from any one of your favorite brands. Plus, there are more significant cashback offers on brand name items. Stores include Walmart, Target, Costco, and most nationwide grocery stores.
Ibotta offers a generous signup bonus and an effortless way to earn your first $20, which is deposited into your PayPal or Venmo account.
Resource: Sign Up Here + Free Bonus
#17. Lower Your Grocery Bill
Food is one of your most substantial expenses. Without sacrificing your health, you want to spend the least amount possible.
#18. Get More Cash Back Online
If you shop at all online, you need to check out Swagbucks.
Swagbucks allows you to get up to an EXTRA 20% cash back from thousands online stores like Amazon, Walmart, Target, and more.
#19. Use Free and Cheap Entertainment
You can still have fun without spending money.
#20. Get Money Back on Past Purchases
Did you know you can get a refund if something you bought online has dropped in price?
Say you bought something last month for $200 and the price dropped 10% due to a recent sale. You can make a quick $20 by claiming a refund.
What makes this process effortless is that there’s a 100% free tool called Paribus which does the heavy-lifting for you.
After signing up for Paribus, it tracks your recent purchases (through emailed receipts). Paribus looks for price drops and helps you get a refund when it finds one.
Unlike other similar sites, Paribus allows you to keep 100% of the refund. That’s right; there are no hidden fees.
Phase #5: Start Making Money
It’s important to work both sides of the debt equation; expenses and income.
Here are a few simple ideas for getting started making money.
#21. Share Your Opinion
Surveys are one of the easiest ways to make money online.
And considering you can complete surveys on your phone watching TV or listening to podcasts, it’s a real no-brainer.
To start making money, all you have to do is sign up with a reputable site. You’ll then be notified when a qualifying survey becomes available.
For example, here’s a survey opportunity recently emailed to me.
Readers of The Ways to Wealth have tried a lot of survey sites, and by far their favorite is Survey Junkie.
#22. Get Money Back
I enjoy finding a great deal online on things I need. One thing I’ve done to save more has been to use Rakuten. Rakuten gives you free money for the shopping you’re already doing.
Essentially, what Rakuten allows you to do is share a referral fee for purchasing through their link. You get a few extra percent off of your purchase from stores like Amazon, Target, eBay, Nordstrom, and more.
Resource: Rakuten with $10 Bonus
#23. Consider a Side Hustle
There are hundreds of ways to side hustle, the most important thing is to pick an idea and run with it.
Any asset you own is accruing interest–even if it’s fully paid off. Sell everything and everything you can on sites like Craigslist or host a garage sale.
Phase #6: Improve Your Credit
Now that you started to pay off debt, decrease expenses, and increase your income–your credit score will naturally improve.
Here’s what to do next:
#25. Get Your Free Credit Report
Get a copy of your annual credit report and check for inaccuracies. This is free to do with AnnualCreditReport.com.
Resource: Annual Credit Report
#26. Increase Your Credit Score
Once your credit report is error free, it’s time to start improving your credit score. Use a free credit score evaluation tool like Credit Sesame.
#27. Don’t Give More Money to Banks Than Required
Whether it’s a mortgage, student loans, credit cards, auto loans, or other personal debt — you can save a lot of money by refinancing.
However, as interest rates are trending up, time may be running out to save.
So, take a few minutes now to make sure you’re not giving more money to a bank than required.
Here’s how to get started:
- Compare Home Loans with Credible
- Refinance Personal Loan Rates with Credible
- Compare Auto Rates with LendingTree
- Refinance Student Loans with LendKey
*Paribus compensates us when you sign up for Paribus using the links provide.