Paying down debt can be incredibly freeing and exciting. When you are in debt, you are tied to the banks and it’s restricting mentally and in your lifestyle. Get out of debt this year through the simple steps presented in this article.
What would life be like if you didn’t have debt? How would you spend your time? What would the freedom feel like?
Being in debt restricts your ability to live freely.
Being debt free allows you to do what you want – without being tied to the expectations of a bank or another individual.
This year, there is a lot of uncertainty, and becoming debt free is a great goal to make sure you can live the way you want.
Debt is horrible: it is mentally draining, financially draining, and affects your entire life if you are weighed down by the large barbell of debt.
I want you to experience amazing freedom. Make getting out of debt a goal, and I’m certain you will feel like a weight has been lifted off of your shoulders once you reach that goal.
Think about it: with no debt, you wouldn’t be a slave to the bank, or to anyone. You’d have more money at the end of the month, and with more money, you’d have more options.
Many people ask, “How can I become debt free? What are the steps to becoming debt free?”
Getting out of debt can be a grind and can take a while, but with the right plan, anyone can do it.
In this post, I’m going to give you 9 simple steps for you to follow to start paying down debt this year. With these steps, you’ll be able to gain the knowledge and confidence to be able to get going on your debt pay down.
9 Simple Steps to Pay Down Debt Fast This Year
To do anything in life, it’s important to define exactly what we need to do and then make a plan. For you, I’ve listed 9 steps which can help you easily create a plan to start paying down your debt fast this year.
You can keep scrolling or click on the following links to go to the section you want.
- Take Responsibility for Your Debt and Personal Finance Situation
- Stop Going Into More Debt
- Gather All Information about Your Debts
- Learn about Debt Pay Down Methods
- Determine Extra Money You Can Put Towards Your Debt
- Set-Up Auto Pay
- Believe in Yourself
- Stay Consistent with Your Budgeting Efforts
- Find Ways to Improve in Your Personal Finances
Below, I’ll go into detail to give you more details on these steps.
1. Take Responsibility for Your Debt and Personal Finance Situation
The first step in making this year the best it can be is deciding to take full responsibility of your life.
You are the only person that can positively affect what happens in your life.
If you want more, you need to go and get it – no one else is going to give it to you.
Taking responsibility of your life means making a plan for yourself and working towards it each and every day.
You can’t just sit on the couch waiting for the world to change – you need to get out there and do what’s best for you and your goals.
While you might believe some people are just more lucky than others, you can begin to create your own luck through your work and habits.
2. Stop Going into More Debt
This should go without saying, but I’ll say it anyway: if you’re trying to kill your debt, STOP GOING INTO MORE DEBT!
For example, if you’ve built up significant credit card debt, you likely have a habit of using credit cards all the time.
That statement isn’t meant to be an insult, rather to call out an extremely common issue that many credit card users and people in debt struggle with.
You can think of it like this, you have a bucket full of water that you are trying to empty. When you make a debt payment, you are able to dump some of the water out, but when you get into debt more, the level of water goes up.
If you are trying to empty the bucket, you need to stop allowing it to be filled with water!
The same applies to your debts – you need to stop going into more debt if you want to get out of debt.
3. Gather All Information About Your Debts
Next, you need to start gathering information about your debts. The information you need to know is:
- the total remaining balance
- the minimum payment
- your interest rate
With this information, you can then start to make a game plan to start paying down your debts strategically.
Before making this plan though, you should first figure out which debts you want to pay off, and which ones are ok.
Is Your Debt Good or Bad?
In general, I believe debt is bad – and many other personal finance bloggers and experts believe debt is bad as well.
That being said, I do think there are cases in which debt can be a good thing. (Remember, personal finance is personal – some people hate debt and believe all debts are bad.)
There are two conditions to meet for my classification of “good debt”:
- First, look at the underlying asset you have which is tied to your debt. For example, if you have a mortgage, the underlying asset is the house you live in.
- If this underlying asset has the potential to appreciate, or increase in value, in the future, then it’s acceptable, “good debt.”
- Some assets I’m referring to in this case would be a house (houses have potential to appreciate over time, and provide you shelter), education (you have to be careful here, but more education can result in higher pay), or a business (a start-up loan).
- Second, look at the interest rate.
- There is an opportunity cost calculation to do.
- Follow the financial theory: if your after-tax return on investments is greater than your after-tax cost of debt, then it’s acceptable to keep your debt.
Everything else is bad debt.
Credit card payments with an interest rate of 20%? Bad debt.
A home loan at 4%? Potentially good debt.
A student loan at 8%? I’m going to go with bad debt. There is, of course, the option to refinance student loans to get a more favorable interest rate.
A car loan at 2%? This one is tricky – cars are depreciating assets, but the interest rate is so low it’s probably fine.
Again, personal finance is personal and depends on your goals. If wealth is your goal, it’s okay to carry some debt. If freedom is your goal, crushing your debt should be your #1 priority.
Next, now that you have an understanding of your debts and understand which ones you want to pay off, now you can get onto learning about debt repayment methods and start to plan your debt pay down.
4. Learn About Debt Pay Down Methods
There are two main strategies to become debt free fast:
- Debt Avalanche Method,
- and Debt Snowball Method.
These methods are pretty straightforward. After compiling your list of debts, you will then pay a little extra towards a certain debt as determined by whichever method you pick.
By paying a little extra each month, you will be able to take advantage of some huge interest savings (as we will see a little bit later in this post).
The Debt Avalanche Method
Using the Debt Avalanche Method, you pay off your debts by paying extra toward your debt with the highest interest rate first. .
Once you have paid off the highest interest rate debt, you put the entire paid off debt’s payment plus the same extra amount towards the next highest until all debt is paid off.
For example, let’s say you have two debts:
- Debt #1 with a 20% interest rate, a minimum payment of $200, and balance of $2,000
- Debt #2 with a 10% interest rate, a minimum payment of $150, and balance of $1,000.
Also, you decide you can put an extra $50 towards your debt a month.
Using the Debt Avalanche Method, you would put $250 towards the first debt and $150 to the second debt.
Over time, the first debt will be paid off faster than it would if you just paid the minimum payment. If the first debt is paid off before the second, then you put all $250 towards the second debt, for a total of $400 a month, until the second debt is paid off.
The Debt Avalanche Method is the mathematically optimal debt pay down strategy.
The Debt Snowball Method
Using the Debt Snowball Method, you pay off your debts by paying extra toward your smallest balance debt first. Once you have paid off the smallest balance debt, you put that payment towards the next smallest until all debt is paid off.
Many people like the Debt Snowball Method because psychologically, you can generally see your debt accounts disappear faster. If you have a $1,000 loan and a $5,000 loan, it feels good to have the $1,000 loan gone.
Let’s go back to our example with two debts:
- Debt #1 with a 20% interest rate, a minimum payment of $200, and balance of $2,000
- Debt #2 with a 10% interest rate, a minimum payment of $150, and balance of $1,000.
Again, you decide you can put an extra $50 towards your debt a month.
Using the Debt Snowball Method, you would put $200 towards the first debt and $200 to the second debt, because the second debt is smaller in balance.
The Debt Snowball Method is not mathematically optimal, but is still better than applying no strategy at all.
5. Determine Extra Money You Can Put Towards Your Debt
Through learning and applying a debt paydown method, you can chop off many months and years of payments.
However, if you add extra money, instead of just paying the minimum on your debts, you can accelerate this process of debt repayment even more!
To do this, you need to look at your monthly income and spending. You don’t necessarily need to create a budget, but by understanding how much you spend each month will allow you to identify what needs to change for you to stop buying and save more money each month.
Your Savings by Paying Extra Each Month
I’ve created an example below where had my hypothetical person has 2 credit cards, a mortgage, an auto loan, and a student loan totaling $246,500.
- Credit card #1 has a balance $3,500 and an interest rate of 23.49%
- Credit card #2 has a balance $10,000 and an interest rate of 20.19%
- The mortgage has a balance $200,000 and an interest rate of 4.00%
- The auto loan has a balance $8,000 and an interest rate of 5.00%
- The student loan has a balance $25,000 and an interest rate of 7.00%
By paying an extra $25 a month and applying a debt pay down method, in this example, there is potential savings of at least $49,915!
How is this savings achieved?
Looking at the left hand side of the figure below, you can see in the Avalanche method, we are paying off the highest interest rate debts first.
Looking at the right hand side of the figure below, you can see in the Snowball method, we are paying off the smallest balance debts first.
By paying just a little bit more, debt can be eliminated quick, and our user became debt free with some solid cash savings.
I’ve also included some statistics if you increase your extra debt payments by $100. The difference is fairly substantial just by paying an extra $100 a month!
In our example, our hypothetical person started out with $246,500 in total debt. If no method was used, it would take 290 months (just over 24 years) and cost $371,109 to become debt free.
By paying $25 extra a month, the user is able to save nearly $50k, and chop off 140 months (nearly 12 years) off their payment plan! If the user could find an extra $100 in their budget, they could save an additional $12,000 and be debt free 158 months sooner!
With either choice of repayment method, you will save money, and be on your way to financial freedom!
6. Set-Up Auto Pay
Humans are imperfect; sometimes you’ll forget to pay their bills, or pay late, which causes a host of problems on your credit report.
The solution?
Automate your bills so you never suffer a late or missed payment. These result in late payment fees that go up the more delinquent the payment becomes, and often result in absolutely crushing penalty APR increases.
For example, most consumer credit cards come with an average APR of 14-16%; miss as little as one payment and banks like Citi and Chase will slap you with a penalty APR of 29.99% that will haunt your account for months
Many banks who provide online banking services also include some integrated bill payment solution. With these payment solutions, you can easily schedule out automated payments for the future.
Since we already know how much each of our debt payments are, and when they’re due from gathering the information from before, setting up recurring payments is as easy as visiting a few websites and linking our banking information.
Once your debt payments are automated, another helpful step is to automate all of your other bills as well such as your utilities, phone bill, insurance, etc.
By automating your personal finances, you don’t have to worry about when things are due and you know they’re set up to fit within your budget. This frees up mental energy to devote toward other things like staying focused on your debt repayment, or increasing income to further beef up your payments.
7. Believe in Yourself
Going back to the first step, you are the only person who can affect change and for that reason, you need to believe in yourself.
Having confidence in yourself can be hard, but you can do it.
Belief in yourself is something you can work on over time, and you can improve your belief in yourself through positive thinking and affirmations if you struggle with it now.
The point is that you need to believe that you are enough and you can achieve anything in life.
No barrier is too much and anything is possible with time and effort.
In this case, you are enough to be able to pay off your debt and you will be on the way to creating the financial foundation you want and deserve.
8. Stay Consistent with Your Efforts
Unfortunately, getting out of debt is going to take time and effort. Each month, it’s going to feel like you have a lifetime to go, but it’s important to stay the course and be consistent over time.
If you are using one of the debt repayment methods, you will be able to experience some easy wins along the way as your smaller debts are paid off, and as time goes on, you will get closer and closer to the finish line.
Understand that over time, you can accomplish anything and for you, anything is possible. Being patient, staying consistent and trusting in the process will get you to where you want to be.
With your debt paydown, consistency will be key, and once you are done with your debt repayment, you’ll be so happy you put in the time and effort to get out of debt. 
9. Find Ways to Improve Your Finances
After you have set your plan for debt repayment, automated your payments and started on your journey to debt freedom, there is more to learn.
In the future, you want to be able to get out of debt and then STAY out of debt.
Learning about personal finance is the next step after getting on the path to debt repayment. In addition, if you can make more changes to your monthly spending, or earn more money each month, you can speed up the time to getting to debt freedom.
How would that feel if you could become debt free a few months earlier? Would that be great?
The highest performers in the world are constantly trying to improve in what they do, and the more you work to improve your financial situation, the better the results will be.
If you are interested in learning more about how to improve your finances, check out the articles below:
- 15 Steps to Win With Money
- How to Create a Budget and Save Money in 2021
- Why Money Matters and How to Use Your Money as a Tool
Get Out of Debt This Year and Start Building Your Financial Foundation
I hope that this post has been informative and has given you what you need to start getting out of debt.
The journey to becoming debt-free might be a long one, but I know that you can do it.
Imagine what you’ll be able to experience without the cloud of debt over your head. The ability to do whatever you want without debt will be so amazing, and you’ll be so happy you did it.
Best of luck on your path to debt freedom and let me know if you have any questions.
Readers: are you interested in getting out of debt this year? What steps do you think will benefit you the most from this list?