12 of the Fastest and Most Effective Ways to Get Out of Debt & Pay Down Debt

By Jordan Evans & Julie Jaggernath

2. Spend Less Than You Plan to Spend

Most of us have wishes and wants that are bigger than our paycheques. You might have heard the old saying, “You can have almost anything you want; you just can’t afford everything you want.” Many people get into debt and stay in debt because they tend to buy what they want, when they want. Not even millionaires can afford to buy everything they want. If you want something, don’t buy it unless you have the money. If you can be satisfied with less than you would ideally want, even temporarily, you can use the money you save to pay down your debt. By the time your debt is paid off, you’ll probably have adjusted to your new priorities, and you can use the money that you are saving to put towards other financial priorities.

Another great way to spend less is to pay with cash rather than credit. McDonald’s has found that people spend 56% more at its restaurants when they pay with credit rather than cash. Studies have shown that people spend 100% more at vending machines or on event tickets when they use credit. Overall, studies seem to show that people tend to spend at least 15% more on everything they purchase things using credit. If we apply this concept to an average Canadian household that currently buys everything with credit cards to collect points or get cashback, they would likely save well over $3,000 per year if they only bought stuff with cash instead (the points or cash back would only amount to $400 in value at best). Even if your savings aren’t as great as this example, you can probably see our point. If you want to get out of debt, leave the cards at home, use cash, and don’t buy things with credit until you’ve paid down your debt to the level you’re working towards.

3. Pay Off Your Most Expensive Debts First

One of the smartest strategies for getting out of debt is to make minimum payments on all of your debts and credit cards except for one. Chose the one debt that is charging you the most interest and focus all of your extra payments on paying off that one first.

Once your first, most expensive debt is paid off, take all of that money that you were paying on that first debt and focus it on the next most expensive debt. Continue this method as you pay down each of your debts, and you will be left with your least expensive debt to pay down last. This strategy will get you out of debt quickly, and you will feel encouraged as you see your progress. There is also a different variation of this strategy that a lot of people find even more motivating. It’s called the Snowball Method. You can check it out to see if it might work better for you.

Related: Where to Find Money to Save Each Month So You Can Pay Off Your Debt More Quickly

4. Buy a Quality Used Car Rather than a New One

Dave Ramsey, a popular personal finance radio host, once said that, “A new $28,000 car will lose about $17,000 of value in the first four years you own it. To get the same result, you could toss a $100 bill out the car window once a week.”

The lesson here is that you can save yourself thousands of dollars if you buy a quality used car rather than a new one. The money you save can help you get out of debt much faster. Go to your local library and look in the Consumer Reports or Phil Edmonston’s Lemon-Aid books to find a quality used vehicle.

If you do choose to buy a new car, Consumer Reports has always recommended choosing a reliable car with good fuel economy, and then they suggest you keep it for 15 years. This will stretch your dollars the furthest and keep you out of debt as you will have plenty of time to save up for another new car.

6. Save on Groceries to Help Pay Off Debt Faster

To save some money to pay off your debt faster, try stocking up on groceries when they are on sale, or go one step further and stockpile when they are on sale and then skip one grocery shop every month and live off of the food you stockpiled. You can stockpile non-perishable groceries like canned goods, cereal, and things that you can freeze like bread and meat. Filling your cupboards when groceries are on sale and then skipping one grocery shop each month can save you up to 25% on your annual grocery bill. A family of four could possibly save $2,300 to $2,900 a year by doing this. Applying these kinds of savings to your debts, will definitely put you ahead in the long run!

The key to this strategy is watching for sales, only stocking up when groceries are on sale and freezing foods properly. When you “skip” a grocery shop, you will still need to buy perishable groceries like milk, fruit, and vegetables, but hopefully you can skip the rest of what you would normally buy. If you can’t skip a shop once a month, then try for once every other month. That can still save you a fair amount of money. For many more ways to save on groceries, check out these tips.

Related: 7 Spending Tips That Can Save You Thousands of Dollars

9. Get a Consolidation Loan

See if your bank or credit union can help you consolidate all of your consumer debts into one loan with one payment at a lower interest rate. This can be a helpful first step in getting your debt paid off. However, getting a debt consolidation loan will only help if you create a budget that does two things:

1. It helps keep you from building up new debt while you’re paying off the consolidation loan.
2. It allows you to save a bit of money every month.

Savings isn’t usually what someone in debt thinks of first, but if you don’t have savings, you’ll likely need to use your credit cards again part way through your loan and end up racking up more debt. The end result could leave you in the same place as before or even worse off. A U.S. bank that reviewed all its debt consolidation loans over a number of years discovered that over 70% of people who took out a debt consolidation loan from them were no better off financially after repaying their personal loans. This happened because these people did not solve their underlying problem of spending more than they earned.

So the key to benefiting from a consolidation loan and making it an effective tool is to use a spending plan (a budget) to ensure you keep your spending under control and set aside some money each month for emergencies or unplanned expenses which will inevitably occur.

10. Refinance Your Mortgage

If you own your own home, you may have enough equity to consolidate all of your debts into your mortgage. If you don’t have much equity in your home, additional mortgage insurance costs may be expensive. Make sure you consider all of your options and seek advice from someone other than your lender (since they have a vested interest in getting you to choose this option). If a normal bank or credit union isn’t able to help you, don’t rush off to find the first home equity finance company that is willing to give you the money. Instead, have a conversation with an accredited, non-profit Credit Counsellor first. You may have better options other than refinancing your home that you’re not aware of. They can help you assess all your options and come up with the best plan to move you forward and accomplish your financial goals.

If you do refinance your home and consolidate debts into your mortgage, you need to think of the new mortgage like the debt consolidation loans we discussed above. It’s super important that you keep your spending under your income (following a budget is usually the best way to do this) and allocate money to each month to savings. If you don’t save any money, you’ll always be tempted to borrow more when “emergencies” arise. Repeatedly using your home as a bank machine can set you up to face retirement with a lot of debt, no assets, and no savings. If this is something you’re struggling with, read on.

Related: How to Pay Down Your Mortgage & Loans Faster & Save Money

12. Create a Spending Plan

Okay, so the “b” word has to fit in at some point. In truth, a budget is just a spending plan. It will help you stay on the straight and narrow with your current debt payments, or your new accelerated payments. A spending plan is something you lay out to make sure that you are spending less than you earn.

Some people say that they don’t like budgets, but have these people ever tried one? Better yet, if you’ve lived all this time without a budget, how do you know you won’t like having one? After trying a realistic budget on for size, most people agree that the alternative—being in debt—is much worse. To learn how to create a budget, click here. We’ve also built a budgeting tool that can guide you through the budgeting process to make budgeting as easy as possible.

Last Updated on October 18, 2024

How to Get More Help to Get Out of Debt Faster

The sooner you start dealing with your debt, the sooner you’ll have it paid off. The next few years will pass whether you pay it off or not, so start by trying at least one or two of these strategies. You’ve really got nothing to lose!

If you need some help getting started with a plan, or if you’re not sure if your budget is realistic, contact a non-profit credit counsellor for free, confidential help. You can meet with them over the phone or in person, and they don’t obligate you to anything. The counsellor will review your whole situation with you and then suggest options to help you reach your goals. Typically, the earlier you contact a credit counselor, the more options you’ll have.