A 2019 survey revealed that 73.2% of Canadians had outstanding debt or used a payday loan, with 31% believing they had too much debt.
If you are part of these statistics and want to know how to pay off debt fast, look no further than this post.
Let’s check out top strategies for getting out of debt, such as creating a budget, reducing spending and earning extra income. We will also cover the snowball and avalanche methods to bring you closer to your goal of being debt-free.
- Paying off debt fast entails making fundamental changes in your life and starting habits that contribute towards freeing yourself from debt.
- The top six strategies to rid your life of debt are setting a budget, reducing spending, consolidating your debt, earning extra cash, paying off expensive debt first and paying more than the minimum.
- Two ways to help you pay off your debt faster are through the snowball and avalanche methods. The snowball approach involves paying off the smallest debts first, while the avalanche method entails paying off loans starting with the highest interest rate.
How to Pay Off Debt Fast
Below are six ways to help you pay off your debt more quickly.
Make a Budget
Having a budget helps you identify areas to save money or minimize costs. Use a budget app or spreadsheet to lay out and review all your income and expenses. Create a realistic budget. Allot a specific amount for debt repayment. Eliminate or reduce non-essential expenses. Use the freed-up funds to pay down your debt more quickly.
Pay More Than the Minimum
Make extra payments consistently to pay off your loan faster. When you pay more than the minimum amount each month, you can save on interest. Talk with your lender about making an extra monthly payment that would go toward your principal.
Pay Off Expensive Debt First
Find your most expensive debt or the loan with the highest interest rate. If you can pay it off first, you reduce the total interest you need to pay and decrease your overall debt. After you have paid it, go to the next highest interest rate and pay it down. Do this until you reach the least expensive debt and pay it down last.
Reduce Your Spending
Categorize your spending and look for areas where you can cut back on costs. Put your needs before your wants to minimize your expenses. Consider reducing your monthly bills by dropping your streaming service or cable service, for example.
Make Extra Money
Earn extra income by starting a side hustle. Go over your talents and skills and see if there is something you can monetize or make money from. Check out gig economy apps for work, such as selling things online or taking freelancing jobs.
Consolidate Your Debts
Consider debt consolidation, a process where you roll all your debts into a single account to help you keep up with various loan payments and due dates. This method also improves your credit score quickly. Different debt instruments help you consolidate your debt, such as a personal loan, home equity loan, credit card, debt management program or debt settlement.
Snowball vs Avalanche Method To Paying Off Debt
The snowball and avalanche methods provide a way to whittle down debt and help you become debt-free faster. Here is how they differ:
- In the snowball method, you pay down your debt by balance size, beginning with the smaller debts. Once you pay that off, take the amount you were paying towards it and put it towards the next smallest balance. Do this until you have finished paying your loans.
- With the avalanche technique, you follow the same steps as the snowball system but start with the loan with the highest interest rate. Once you pay off your highest interest loan, followed by the second highest one, until the last debt, you save on interest payments, which you can use towards paying off your debt.
What is the avalanche method?
The avalanche method is a way to pay down your debt faster and involves paying off your highest interest debt first and working your way toward your debt with the lowest interest rate. After paying off the loan with the highest interest rate, put that amount of money toward the next highest interest rate, and so on, until you have paid off the last of your debt.
Can you get free money to pay off debt?
The Canadian government does not offer free money to help you settle your debt, but debt relief services and programs are available to help you reduce your overall debt and pay off your loans more quickly. These include debt consolidation, debt settlement, credit counselling, consumer proposal and bankruptcy.