5 Steps to Get Debt-Free Fast

Studies show that debt-free living reduces stress and improves your physical and mental health. It takes careful budgeting to balance necessary expenses, pay off debt, and save money. 

Here are five ideas for getting debt-free fast so you can focus on a brighter financial future.

How to Get Debt-Free Faster

Keeping up with your expenses isn’t enough to get you out of debt quickly. In fact, it means you’re playing the lender’s game. If it takes you longer to pay, they make more money. 

If you become debt-free faster, you pay less interest. That means you win. 

Here are five ways to get debt-free faster.

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1. Negotiate Better Debt Terms

One way to ease your debt burden is to negotiate better debt terms with your creditors. There are a few ways to approach this:

• Get a lower interest rate. If you have a good payment history, you may qualify for a better interest rate on a credit card. For longer-term debt like a mortgage, refinancing is a more likely path to lowering your interest rate.

• Pursue debt settlement. This means negotiating with your creditor to accept less than you owe and forgive the rest. Consider debt settlement only when you can’t find a way to repay your debts in full. 

2. Organize Your Debt Repayment Strategy

Even if you aren’t having trouble paying the bills, you could still benefit from organizing your debt repayment.

First, keep paying all of your bills on time. Then, choose a plan of attack. 

Some people prefer to start by paying off their smallest balance first. Getting rid of that first debt as soon as possible can be highly motivating. 

Or you could put all your extra money toward paying the debt with the highest rate. This helps you pay down the most expensive debt first. You could pay less interest overall by the time you clear all of your debts. 

Related: Debt Snowball or Debt Avalanche: Which Is Better?

3. Benefit from Debt Consolidation

A benefit of prioritizing your debt by interest rate is finding debt consolidation opportunities. 

Debt consolidation means transferring multiple debts into a single new loan. This could make your debt easier to manage. You could benefit a lot if you trade high-interest debt for lower interest debt. 

Look for the most expensive debt on your list, and consider ways to pay it off with a cheaper loan. 

Some possible ways to do this include: 

• Use a cash-out refinance mortgage or a home equity loan to pay off higher-interest debt.

• Take a personal loan to pay off high-interest credit card debt if you can qualify for a lower rate.

Credit card balance transfers might not be a great debt consolidation strategy. Transferring balances can turn into a juggling act. Many people put new debt on the paid-off credit cards after transferring the balance and freeing up some or all of their credit lines. 

Balance transfers usually come with a 3-5% fee. If you can’t pay off the transferred balance by the end of the low-interest period, your balance is likely to be subject to a very high interest rate (possibly even higher than you were paying before). Generally speaking, more credit cards aren’t the solution for credit card debt.

4. Find Extra Cash for Debt Repayment

Try managing your resources to find more money for debt repayment.

Here are some possibilities:

• If you get a tax refund check, put it toward your debt.

• If your employer pays you a bonus, use it to reduce your balances.

• Every time you get a raise, direct at least half the additional amount in each paycheck toward debt repayment.

• Make a budget that focuses on the essentials and debt repayment first.

• Sell belongings you don’t need to raise cash for debt reduction and (bonus!) declutter your house.

5. Balance Savings with Debt Repayment

One of the problems people face as they try to pay down debt is how to balance savings with debt repayment. Both are important, so which should come first? Both. It’s a dance.

First, save up $1,000 or $1,500 so you’ll have some cash on hand for an unexpected expense. 

Then devote all of your energy to getting rid of your debt. Interest on savings and returns on investments can’t compete with high-interest debt. 

Once you get rid of your debt, save enough money to get by for at least three months with no income. While you’re saving your emergency fund, or right after you finish, you can start saving again for retirement.

Paying off debt helps prepare you for retirement. Debt essentially cancels out savings. If you have $1,000 saved for retirement and a $500 credit card bill, you really have $500. The other $500 is already claimed by someone else. Looking at savings alone could give you a false sense of security. Get rid of the debt so you know—accurately—where you stand.

Once your emergency account is fully funded, you can start socking money away for the future. 

Is It Worth It to Get Debt-Free Fast?

Getting out from under your debts entirely (or getting started with any kind of debt relief) could improve your finances in the long run. There are definitely mental health benefits, so it’s a goal worth working towards. 

Paying off debt can help save a lot of money in your budget, since you won’t be paying interest. When you have debt, a portion of every dollar you spend goes to banks or credit card companies instead of the things you want and need. Getting free of debt means taking control of where your money goes. 

The more debt you have, the longer it takes to repay. The longer you take to repay it, the more you’ll pay in interest. Also, if you have high credit card balances, they’re likely dragging down your credit scores. That means you’re more likely to pay higher interest rates.

The mental benefits of getting debt-free

Several studies show a relationship between debt and emotional distress. For example, a 2012 study found that people with debt were about three times as likely as those without to have common mental disorders. 

It’s more common for people with debt to have common mental disorders compared to all other groups measured by the study.That includes people who had lost a spouse due to divorce, separation, or death, and unemployed people.

They say money can’t buy happiness. However, getting debt-free can improve your state of mind and your financial situation.

Secured vs. Unsecured Debt

So what does getting debt-free mean? To be clear on what you should shoot for, it helps to distinguish between secured and unsecured debt. 

Secured debt is a loan guaranteed by something you own as collateral. Mortgages and car loans are typical examples of secured debt. If you don’t pay your loan, the lender can take your house or car and sell it to recover the money you owe.

Secured loans can also help you in these ways:

• Because the loan has collateral, lenders tend to charge lower interest rates on secured debt. That makes it cheaper for you than other forms of debt, like credit card debt.

• If you use a secured loan to buy something with long-term value, like a house or a car, the debt is offset to some extent by an asset. In terms of your net worth, that’s a wash. However, if you use your credit card for a vacation or a night on the town, you’re taking on debt without an offsetting asset. That harms your net worth. This is why many people equate being “debt-free” with eliminating unsecured debts. 

Is Mortgage Debt “Good Debt”? 

Debt is a tool, and sometimes you can use it to increase your net worth and improve your financial standing over time. Getting a mortgage to buy a home is a prime example of this. 

Most of us can’t buy a home with cash. It could take decades to save up enough money. Getting a mortgage to buy a home is generally an acceptable use of debt.

Thankfully, you can take out a mortgage to buy a home. Whether you’ll be approved depends on your credit profile, income, and how much money you have for a down payment. There are mortgage options for people with bigger and smaller down payments. 

A mortgage is often considered a good debt because with each payment, you’re building valuable equity and creating a better quality of life for yourself and your family.

If you’re eager to be debt-free, focus on your other debts first.

Motivation to Get Debt-Free Fast

So why should you get debt-free fast? Because you could:

• Get better offers. You can’t always avoid borrowing, but you want the lowest possible cost when you do. Having less debt will likely help you qualify for lower rates the next time you borrow. 

• Avoid the stress and consequences of bankruptcy. Clearing your debts could help you remain financially stable, avoiding the need for big debt solutions.

• Free up income for savings and wants. Pay less to your creditors and more to yourself. When you lower your debt, you reduce your interest expenses.

• Function better. Debt is often associated with depression and other disorders. On the flip side, a study published in the Proceedings of the National Academy of Science of the United States found that cognitive functioning increased once people dealt with their debt.

• Retire sooner. It’s difficult to retire if you’re still maintaining lots of debt and your income is likely to be lower in retirement. Also, the less debt you have, the more you could save for retirement. 

• Sleep better. Less stress could help you sleep more soundly. Do you need a better reason than that?

With so many great reasons to get debt-free, why not take the first step now?