Your debt can be like an anchor dragging down your financial freedom. The less debt you have, the more flexibility you must invest, save, and protect your other financial interests. For many, paying down debts is the key to financial freedom, but paying off all your debt isn’t always easy. Fortunately, there are many ways to take control of your finances and attack your debts. 

Organize your financial information. 

The first step to paying off your debts is to find them. If you haven’t organized your bills and debt payments lately, this is the perfect time to do exactly that. Start by making a list of all your debts including: 

• Mortgage 

• Car payments 

• Credit cards 

• Loans 

• Unpaid taxes 

• Unpaid bills 

• Student loans 

• Child or spousal support 

Once you have a list of what you are working with every month, sort out the total amount you owe, the interest rate for each obligation, and the minimum payment for each. 

The compiled list is your objective. To be completely debt free, you’ll need to pay off everything on the list. In most cases, however, simply paying off credit cards and loans can make a tremendous impact on your financial freedom while you work on the loans with the longer terms or payoff cycles like car payments and mortgages. 

Find out how much you can pay 

The next step in your debt journey is to sort out how much you’re working with. The more money you can send to your debt payments every month, the faster you’ll pay them down. You know how much you’re supposed to be paying to hit the minimum on all your payments. So now it’s time to figure out how much of your income you can dedicate to those payments. The goal is to pay more than the minimum to pay off each debt more quickly. 

To find the amount you can realistically pay every month, you’ll need to check your budget. This means making a list of anything else you pay on every month beyond the list of debt obligations you made above. This might include: 

• Utilities 

• Phone 

• Cable 

• Insurance 

• Retirement 

• Streaming services 

• Gym memberships 

• Groceries 

• Entertainment expenses 

Only when you have the full list of things you buy or pay for every month can you see what you realistically have left to spend on paying down your debt.  

Create a plan 

Unless you already have a solid budget, you probably have some extra funds you have been spending on things beside debt that can be redistributed. To do this and accelerate your debt payment schedule, you’ll need to create a solid budget.  

A good rule of thumb for a budget is 50/30/20. That means: 

• 50 percent of your income is spent on things you must have like food, shelter, insurance, and transportation. 

• 30 percent of your income is spent on things you want like cable, gym memberships, and entertainment. 

• 20 percent of your income is spent on debt payments including minimum payments and extra payments to pay off your debts completely.  

Working with your list of monthly expenses and debts, organize your debts into categories to see how close you are to the 50/30/20 guidelines. This may be the time to look at possible cuts in some areas to help boost spending in others.  

For example, you might decide to cut cable and two of your streaming services and survive for a few months with only a single streaming service for entertainment. You’ll save quite a bit, and that extra money can go toward paying off debts. You might reduce your cell phone plan to save some funds or cancel your gym membership.  

Setting up a budget can also include looking hard at your food and entertainment expenses. If you’re spending a lot on food every month, consider cooking at home a couple of nights per week or bringing lunch to work for a few months to help accelerate your debt payments and put your money to work in more helpful ways.  

Attack your debt 

Now that the pieces are in place and you know how much you have each month to work with and the debt payments you need to spend it on, it’s time to get to work. You have some options about how to attack your debt to get the maximum benefits from your monthly debt payments.  

The Snowball 

A debt snowball is the idea of a small payment growing larger and larger as it rolls down your mountain of debt, paying more over time. In a debt snowball, you attack your smallest debt first and work up to your largest debt.  

The snowball starts by taking every available debt dollar beyond the minimum payments and attacking the debt with the smallest balance. It should be paid off quickly with the much higher payment.  

Then, the full amount you were paying for that debt jumps to the next smallest balance. As you pay off each small debt and move the payment to the next debt in line, the amount you’re paying grows until you’re paying a great deal every month on your largest debts like car payments and mortgages. 

The Debt Avalanche 

The idea behind a debt avalanche is the same as the debt snowball with one difference. In the debt snowball, you’ve arranged your debts to be paid off according to the total balance, paying them off from the smallest balance to the highest. 

With a debt avalanche, you will arrange your debts in order of the highest interest rate to the lowest. The interest rate on your debts amounts to how expensive it is to hold a particular debt, or how much it costs to borrow the money. Paying off the debt with the highest interest rate first will help you pay less over time by working your way from your most expensive debt payments to the least expensive. 

Debt Consolidation 

In some cases, the best strategy to paying off all or most of your debts is to pay them all at once. Debt consolidation involves taking out a personal loan at a reasonable interest rate that is lower than the interest rate on the debts you’re paying off. The options available for debt consolidation will depend, in part, on your credit score. There are loan options for bad credit but be sure to check the interest rates on your options to ensure the new loan makes sense.  

Once the personal loan proceeds come in, you pay off all the smaller debts, typically credit cards or expensive student loans. With the smaller loans and debts paid off, you will only need to make a single payment every month for the new personal loan.  

The new loan payment may also be less than the total of the minimum payments for the debts you paid off, giving you more money to pay off debts you didn’t consolidate or to accelerate the payment on your new loan. Additionally, personal loans are set up with a fixed rate and payment schedule, so when you’ve made all the minimum payments, you’ll have paid off the loan – and your debts – in full.  

RELATED: How to Use Debt Consolidation to Save Money

Pay off your debts successfully 

You have a budget. You have a plan to pay off your debts. Now it’s time to simply execute the plan. Surprisingly, this can be harder than you might think. There always seems to be something that gets in the way of your good intentions, so it’s important to plan ahead for the pitfalls you can anticipate along the way. 

Create a realistic budget 

In the excitement of a debt payment plan, we often create a budget that is based on an ideal, not a reality. If you’ve cut corners and expenses in the interest of paying off debt more quickly, it’s important that you only cut the corners you can live without. If you can’t stick to your budget, you’re not going to be successful, so be realistic. 

Be sure everyone’s on board 

Nothing will sink your debt repayment plan faster than someone working against you. Everyone in your household needs to be on board with the plan to pay off your debts. If one person is racking up new debts and spending on a card you’re trying to pay off, you’re going to sink quickly. Plan together and be sure everyone understands and has committed to the plan, even if it means compromising on how quickly and aggressively you pay off certain debts. 

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Lower bills as much as possible 

The trick to paying off debts quickly is to spend as much as possible every month paying them off. This means you need to spend less on everything else. Slash at your bills as much as possible to reduce spending. Consider making big savings like selling an extra car or even moving somewhere less expensive to get ahead. 

Make more money 

You can also throw more money at your debts if you have more money to spend. Find ways to earn more money every month by picking up a side gig, selling things around the house, or working some overtime to help pad the income side of your budget. 

Consider credit counselling 

If you have a tremendous amount of debt that feels overwhelming to work with yourself, a credit counselling agency might be helpful. Credit counselling can help you work through the steps of sorting out debts, figuring out a reasonable budget, and then making a plan. Just be sure you’re working with credit counsellors who will help you organize your plan of attack rather than companies who promise to “solve” your debt problems for a fee.  

Also see our Canadian Guide to Get Out of Debt for more insights.