Fastest Way To Pay Off $5,000 or More in Debt (Half of Americans Need This Advice)
A recent GOBankingRates survey found that the majority of Americans (51%) currently have over $5,000 in non-mortgage debt, with 18% having between $5,000 and $10,000, 10% having between $10,000 and $20,000, 10% having between $20,000 and $50,000, and 13% having over $50,000 in debt.
When you have thousands of dollars in debt, it can feel hard to know where to start if you want to bring your balance down to zero — and fast. While it will take planning and discipline, there are some ways you can pay off your debts as quickly as possible.
“The key to paying off debt quickly is to make it a priority,” said Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth. “If you plan to pay off your debt with what is left over, you will make little or no progress.”
Here is how to make paying off a debt a priority.
Stop Taking on New Debt
You won’t be able to pay off your existing debt if you keep adding to it.
“Lock all of your credit cards and stop taking out debt,” Zigmont said.
In addition to not spending on credit cards, avoid taking out any additional loans during this time.
Create a Budget
In order to make a plan for paying down your debt, you first need to have a holistic picture of what money is coming in and what money is going out each month.
“Get on a budget,” Zigmont said. “It does not matter what budget or budget app you use — use the one you like.”
Make sure you are not spending more than you are making, and look for ways to cut back on expenses so that you can dedicate more of your income to debt repayment.
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Set a Goal
Having a goal in mind for how much debt you want to pay off and by when will help you determine just how much you need to be setting aside each month.
For example, “if your goal is to pay off $6,000 in debt this year, then you would budget $500 each month toward your debt,” Zigmont said.
Keep in mind that you may actually need to budget more to account for interest.
Use the Snowball Method
There are a number of debt repayment methods, but Zigmont recommends using the snowball method when you have numerous sources of debt — which many Americans do. The GOBankingRates survey found that the most common types of debt held by Americans are credit card debt (47%), auto loans (24%), mortgages (24%), medical debt (20%) and student loans (19%).
“Pay off your debts from smallest to largest,” he said.
While tackling the smallest debt, continue making the minimum payments toward all your other debts. Work through them one by one, and be sure to celebrate your wins along the way.
“It takes time to get out of debt, and celebrating each small improvement helps,” Zigmont said.
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Methodology: GOBankingRates surveyed 1,005 Americans ages 18 and older from across the country between Jan. 16 Jan. and 18, 2023, asking 20 different questions: (1) Do you currently have any form of an emergency fund?; (2) How much do you currently have put away for an emergency fund?; (3) If you faced an emergency (medical, housing, etc.) how would you have to pay for it?; (4) How much do you currently have saved for retirement?; (5) Do you have any of the following debt? (Select all that apply); (6) How much debt (student loans, medical, auto/personal loan, credit card, etc.) do you currently have? (NOT including mortgage); (7) If you have a significant other, how much do you argue about money concerns?; (8) Which money topics do you discuss with your children? (Select all that apply); (9) How often do you discuss personal finance issues with your family and/or friends?; (10)What are the chances, in an average month, of you and your family running out of money before you are paid next?; (11) What worries you most when it comes to your personal finances?; (12) Compared to pre-COVID (before March 2020) are you more or less confident in your personal finances?; (13) If you received an unexpected bonus of $5,000, what’s the first thing you would do with it?; (14) If you won the lottery ($100 million), which of the following would you do with the winnings? (Select all that apply); (15) Would you rather…ask a family or friend to borrow money or max out a credit card?; (16) What would you like to learn more about in order to improve your personal finances?; (17) Do you consider yourself a spender or a saver?; (18) Which categories do you believe you overspend on? (Select all that apply); (19) How much do you spend on self care monthly?; and (20) What is your top financial priority? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.