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How to Get Out of Debt Fast On Your Own

Posted August 27th, 2011 in Debt by Jeremy Waller

get out of debt

If you were to ask 1,000 adults what one of their biggest financial goals were I bet 95% would list getting out of debt in their top 3. In America we are loaded with debt because of our materialistic mindset. I constantly have to keep my “shiny-object” syndrome in check.

Don’t get me wrong. There’s nothing wrong with spending money. The problem is when we spend more than what we have. Flash back 3 years ago and I was in this pit. I lost a 2nd income that I had for a couple of years. I was accustomed to a certain level of spending that was fine when I had the extra income. But, I didn’t adjust my spending when I lost it leading to $10,000+ in credit card debt.

Getting out of debt is rough. I’m not going to sugar coat it. It’s an uphill battle. It’s more than just changing some numbers on paper. It takes a whole shift in your mindset. You can get out of debt fast on your own.

Decide You Really Do Want to Get Out of Debt

That may seem kind of silly. Why would you be looking for ways to get out of debt if you really didn’t want to get out of debt.

What I mean by this is it takes more than just flippantly saying “Oh, sure. I’d like to pay off some debt.” There’s a lot more to it than that.

To get out of debt you’re going to have to make some cuts that probably won’t be fun. You’re probably going to have to learn to say no when your friends want to go shopping or when your buddies want to take a road trip to some big game.

Most people (myself included) end up in debt because we live above our means. Sometimes it’s small stuff like eating out for lunch everyday. Or it may be something big like a vacation or a new TV that you don’t have the money for.

Credit cards are one of the best tools of the debt devil. They make it so easy to impulse buy and worry about the consequences later.

To get out of debt you’re going to have to have a change in mindset.

You Also Need To Set Up a Budget

This is another dirty word for some people – B-B-Budgets. My wife was so against this when I first started campaigning to put our family on a budget.

A lot of people see a budget as a financial prison. They think in a budget you are no longer free to spend your money as you please. You’re caged in, limited, imprisoned.

I have come to find that a budget is one of the most financially freeing things in the world.

Crazy talk you say!?

Let me tell you why I love budgets. Budgets free you from worrying about your finances. Budgets allow you to allocate your money before it is ever spent.

In a budget you can look at the month and know there will be enough money to pay everything. In a budget you can feel guilt-free when you go out to dinner or buy that pair of shoes or tickets to the game.

Why? Because when your money has been allocated before it hits your wallet you know exactly how much you can spend on things.

Check out my post here on how to set up a budget.

Once you have your budget you should have a good idea of where your finances really stand. If you were honest in looking at where your money goes you probably found that you were spending more than what you bring in.

Find a Way to Make Expenses Less Than Income

Oh boy. Here comes the painful part. You have to find a way to spend less than what you bring in each month.

This seems simple, but I’ll say it anyways….you have to find extra money somewhere to be able to pay off debt. The most straight-forward way to do it is to cut expenses.

The target I like to shoot for is $200 per month. For some people that may be easy – great! Then cut more and your debt will go down faster. For some the only way they could find and extra $200 is to quit eating or have their electricity cut off – that’s ok. Cut as much as you can.

Where do you find this $200 in your budget? See if you’re spending money on any of this:

  • Cable – $100+ /month
  • Eating out at lunch – $6-$10 a day.
  • Starbucks – $5 a pop. Doesn’t take many trips to add up.
  • iPhone/Android/Blackberry  – $40+ /month more than a basic cell phone.
  • Home phone in addition to a cell phone – $30/month

This isn’t even getting into things like cutting out some of the more expensive items at the grocery store, evaluating your driving habits that use more gas, setting your thermostat a little higher in the summer or lower in the winter and dozens of other money saving ideas.

If you really look, I’d bet it’s not hard to find an extra $200 in your budget. It may not be fun to cut cable, but if you want to get out of debt badly enough you’ll do it.

Outline Out All of Your Debt

With the money allocated to pay down your debt, you need a list of everything you want to pay off.

Pull out the last statements from all of your credit cards, your mortgage, auto loans, student loans, lines of credit and any other debt you have. Make a list of the minimum payment, current balance and the interest rate of each account.

I prefer to put all of this in Excel since it makes sorting your list a lot easier. If you don’t have Excel, Google Docs works just as well. A plain old notebook works fine too.

When you’re done you should have something that looks like this:

Get Out Of Debt Spreadsheet

Apply The Extra to the Highest Interest Rate

Here is where the rubber meets the road. You have your debt reduction plan. All you have to do is follow it.

Take the extra $200 from above and put it towards the debt with the highest interest rate. This should be in addition to the minimum payment.

So using the example above I would start paying $350 each month on my credit card. I would keep paying this amount each month until it was totally paid off.

Once the credit card is paid off I would put the $350 that was going towards the credit card to the boat loan. So the total payment was $600.

Once the boat was paid off, the extra $600 would go towards the auto loan so I would be paying  $920 a month.

With the car paid off I would add the $820 a month to my mortgage so I was paying $1,870 per month.

Finally with the mortgage paid off I could put $1,970 towards my student loans.

Doing this I would be totally debt free in less than 10 years and save over $52,000 in interest! 10 years may sound like a long time, but don’t forget that you’re paying your mortgage off too. If you didn’t want to pay off your mortgage you could cut several years out of that timeline.

That’s pretty powerful to be able to pay off over $170,000 in debt in such a short time! Could you imagine being totally debt free. You would have an extra $2,000 per month in your pocket!

Don’t Charge up More Debt

Here is a big key that so many people miss. Working to get out of debt is great, but if you just charge everything back up again it totally defeats the point.

Don’t expect this to happen by chance. You need a plan to make sure you don’t get back into debt. That may mean you cut up your credit cards. Maybe you just need to put them in an inaccessible place such as a safe deposit box.

It’s also a good idea to identify your weak points. If you can’t resist the home shopping channel then make sure you never watch it. If a shiny new car makes your mouth drool, then don’t drive by any car dealerships!

 

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5 Responses so far.

  1. YFS says:

    I would say making up your mind you really want to get out of debt is the most important piece. Once you agree with the person in the mirror that:

    1. I want to really get out of debt
    2. I will have to sacrifice
    3. It will not be easy adjusting

    You are 90% there.

    Most people like the idea of being financially free, but don’t want to do what it takes to actually be free.

  2. I agree with YFS, you have to want to make a change before you can actually do so. Once you have this decision set in stone, then you have to put together the budget and spending pieces. Of course, if you don’t track your spending, you may never be able to get out of debt because you’ll have no idea where your $$ is going–no matter how badly you may want to change your situation!

  3. Brie says:

    We are also trying to pay off our mortgage by the time my husband and I are 40. We are making extra lump sum payments and also paying a bit more per payment. Hopefully we will be able to reach our final goal as our mortgage is our only debt we have left. We have been able to pay off all of our other debt by cutting our expenses and saving like crazy. We still splurge once and a while but we just don’t go out and buy things we don’t need all the time. We live within our means. Thanks for posting your article.

  4. Thanks for the article, which I found very interesting. I believe that in “normal times” should buy a home. On the one hand you acquire an asset that will rise in value over time. Furthermore, diversify your investments. However, in actual situations is important to consider other considerations. For a ldo, the value of the properties. Furthermore, the trend in the value of the houses. Third, the financial conditions. And finally the projections of the country’s economy and the world.

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