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What’s the Quickest Way to Pay Off Debt?

15–18 minutes to read

Now we’ve committed to taking action immediately, what is the quickest way to pay of debt? We now know the start of our journey (our true debt position) and we know our destination (to be debt-free). But what is the quickest way to get there?

For some, this can be an intimidating and overwhelming task in itself.

Or perhaps you’ve made the decision that you are finally going to clear your debt once and for all? Maybe you’re hell-bent on getting it done as soon as possible? So you can be free of those ‘debt demons’ and get on with the rest of your life.

Either way, this session will firstly look at how you need to get prepared. And then we’ll examine the quickest way to structure your repayments, based on your personal circumstances.

By the end of this article, you will have a clear plan on how to destroy your debt in the shortest time possible.

Four Things to Ask Yourself Before Paying Off Debt

Before you choose which method you want to attack your debt with, make sure you run through the following checks:

1. Can you pay off your debt with savings?

Fundamentally, having savings sitting in an account can feel emotionally rewarding. However, it’s technically not the right financial decision if you have outstanding debt.

For example, a credit card might have an interest rate of 15% and it is extremely unlikely that your savings are returning more than that. But what if you have an emergency?

For example, £5,000 worth of debt at 15% interest is costing you £750 per year. Whilst if it was sat in a savings account with 1% interest, this is only earning you £50. By using your savings to pay off debt, you have saved £700 a year.

In addition, if you have an emergency you can always use the credit card and you’d be no worse off. Hopefully, the chances of an emergency happening are low.

2. Can you move your debt?

Some credit cards offer 0% deals for a limited time if you transfer your existing credit card balance. This can give you some welcome breathing space.

At the time of writing, one of the best deals on the market is from Virgin Money. It offers 0% on balance transfers for up to 29 months. But, there is a 3% fee to transfer. If you don’t pay it back within 29 months, then the interest jumps to a whopping 21.9%!

Using our previous £5,000 debt example, we could transfer this balance to Virgin Money. It would cost £150, so we would now have a total debt of £5,150 to pay back over 29 months. If you set up a payment plan for £180 per month, you would have this cleared in time.

You can also use this method to ‘park’ some debt while you pay off other loans. 

3. Should you consolidate your debt?

You may have more debt than you can transfer onto one or more 0% credit cards. If so, it may be worth considering consolidating your debt into a personal loan.

All this simply means is taking out a low(er) interest rate personal loan and using that to pay off your debt.

For example, you may have various debts on credit cards totalling £10,000 that are currently subject to 18% interest. In this case, you could take out a £10,000 personal loan at a lower rate. This reduces your minimum payments, but you can (and should) overpay with anything that you can.

Remember, for this to work, you must not use that credit card again. This is a trap many fall in to. Cut it up once and for all.

4. How can you pay extra?

The key to paying off debt as fast as possible is to overpay as much as you possibly can. It needs to become your sole purpose in life. You need to look for ways you can optimise this as much as humanly possible.

So, start by looking at any existing costs you have. Get rid of anything that you either don’t need or can do without for a while. Remember, clearing debt needs to be your number one priority.

That means Netflix is a lower priority and can go. The gym? Try working out in the garden or living room for a while. Expensive morning caramel lattes? You’ve got it; grab a flask and make your own.

Top Tip – you may have heard of a little website called eBay. It’s great for selling things you no longer need and making crucial extra cash for paying off your debt. It can make a real difference once you get going. Make a commitment and aim to sell at least one thing per week.

Yes, these things may suck for a while but do you want to get out of debt or not? Remember, it’s only temporary.

Before you start

To start with, you will have ideally created a budget to identify and maximise any spare cash at the end of the month.

Also, you will need to have at hand the list of all your debt you created in the previous session. This should include the outstanding amounts, interest rates and minimum payments.

Table detailing each debt

Next, we’ll look at the two quickest ways of pay off debt. Which one you choose is up to you. It is important to make a choice based on your personality and what you think will motivate you more.

Essentially, the two ways of tackling debt are The Debt Snowball or The Debt Avalanche.

The Debt Snowball - best for motivation

The most efficient way to build a snowball is to compress a small bit of snow in your hands. You then start rolling the ball on the floor. Gradually, you collect more and more snow as you gain momentum. The snowball becomes larger and larger and gathers ever-increasing speed.

Well, the debt snowball works in the same fashion. Firstly. you make the minimum payments on all of your debt. Next, you focus any additional money you have towards paying off the smallest debt first.

Once this is paid off, you take the original minimum payment from the smallest debt plus the overpayment and focus it all on the next smallest debt. Now you are gathering increasing momentum.

As you clear the smallest each time, you focus all the money on the next smallest. Each time your overpayment gets bigger and bigger. Eventually, you become unstoppable and clearing debt is inevitable.

Feel empowered

The reason this method is one of the quickest ways to pay off debt is that it’s highly motivational. By paying off the smallest debt first, you feel great by having cleared at least one balance relatively quickly.

Getting this early ‘quick win’ is highly motivational. You start seeing a glimpse at the end of the tunnel and are motivated to keep going. You start believing you can do this.

Many people have lots of smaller debts and paying these off can help save mental headspace. You will also have fewer bills coming through the door, which helps to reduce stress, worry and anxiety.

This process feels very empowering. However, it doesn’t take into account the interest rate you pay on the outstanding debts.

This means if one of your larger debts has a high-interest rate, then by delaying paying this off, it mathematically costs you more in interest rate payments in the long run.

If financial efficiency is more important to you, check out the avalanche method.

The Debt Avalanche - most efficient

The Debt Avalanche is also one of the quickest ways to pay off debt and works on a similar principle to Snowball. But rather than start with the smallest debt balance, it instead focuses on the debt with the highest interest first. Gradually, you work down to the balance with the lowest interest rate.

Again, as you clear each debt, take the previous minimum payment and overpayment and apply it to the next most expensive debt.

Technically, this is the best option. However, if your biggest debt also has the largest interest rate it can feel like you are making slow progress and is potentially demotivating.

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Example - how Bob paid off £6,500 of debt in just two years

Bob has £6,500 of debt.

Bob is sick of tired of that debt monkey on his back and dreams of financial freedom. He’s made a firm decision and now wants to build a plan to get out of debt. He currently has the following debts:

Step 1 - know your numbers

Bob’s list of debts
Balance Interest Rate
Credit Card 1 £ 2,000 18%
Credit Card 2 £ 1,000 15%
Overdraft £ 500 12%
Personal Loan £ 3,000 4%
Total £6,500

Step 2 - create a 'gap'

Bob has followed the previous steps by documenting his debts and getting rid of costs for things he doesn’t need. He’s cancelled his Netflix subscription, removed Sky Sports and renegotiated his TV and broadband package.

As a result, Bob has created a ‘gap’ between his income and outgoings of an extra £125 a month. Bob is doing great so far.

He now plans to focus this money on paying down his debt and moving on with his life.

His current minimum payments are:

Bob’s minimum payments
Credit Card 1 £20
Credit Card 2 £10
Overdraft £60
Personal Loan £100
Total £190

Step 3 - streamline

Bob’s first step is to see if he can pay off his debt with any savings. Unfortunately, Bob has no savings, so this is not an option for him.

His next step is to see if he can move his debt to reduce the interest. Bob checks out the best credit card deals and sees he can get a credit card that will give him a £4,000 limit and 0% on balance transfers for 18 months. Bob has to pay a 2% fee to move his debt.

So Bob moves his two credit cards across, costing £60 in fees but saving him £510 per year in interest (£360 credit card 1 + £150 credit card 2).

Bob still has to make a £30 minimum payment. However any overpayment he makes in future will be directly paying off the balance, not the interest. This will turbo-charge how quickly he will pay this balance off.

Bob has taken positive action.

Bob’s debt table now looks like this:

Bob’s new, smaller list of debts
New Credit Card £ 3,060 0% for 18 months
Overdraft £ 500 12%
Personal Loan £ 3,000 4%
Total £ 6,560

Step 4 - the avalanche

Bob is an analytical type and chooses to use the avalanche method. He focuses his ‘gap’ of £125 a month on his overdraft, as this has the highest interest rate. After four months of overpaying, the overdraft is cleared. This frees up the £60 per month he was paying in fees. Bob is feeling good.

Step 5 - the avalanche gathers momentum

So, Bob now has £185 (the original £125 plus the £60 that the overdraft was costing him) per month to focus on the next debt. He still has 14 months interest-free left on his new credit card, so this time he focuses on the personal loan.

Bob takes his £185 and adds it to the £100 he is currently spending on his loan, making his total monthly payment a fantastic £285. After 11 months of doing this, Bob clears his personal loan and is sleeping much better at night.

Step 6 - Bob re-evaluates

He now only has three months left on his 0%, so he now focuses on this. By now, he can add his £285 debt avalanche to his £30 minimum credit card payment. As a result, he is now paying an awesome £315 per month.

During the final three months of his 0% credit card deal, Bob pays off £945, leaving him with a balance of just £2,115 of debt.

Bob gets back on Google and finds a new 0% credit card deal. He moves the outstanding balance to a new deal and sets up a standing order to make his total monthly payments of £315 per month.

Bob smashes it and is now debt-free

By doing this, the final debt is cleared within just seven months. 

As a result, in just over two years, Bob has managed to clear his debt of £6,500.

Bob’s new debt-free status means he has an additional £315 per month to put towards a larger Emergency Fund. This meanss he should never have to get in debt again. He’s also walking a little taller these days.

Well done Bob.

So, what IS the quickest way to off debt?

There are many fans of both methods as the quickest ways to pay off debt and both are credible and effective. That is why this is your choice.

If you feel that quicker wins will keep you motivated and focused, then go for the snowball method. It doesn’t matter if it’s technically not the best. What matters is that you’re constructively clearing your debt in a sustainable way for you.

On the other hand, if you have a more analytical mind and prefer to do things mathematically correct, then try the avalanche method.

Remember, there is no wrong way and you can always change your method at any time.

You do you

The decision between the snowball vs avalanche as the quickest way to pay off debt is a personal one. It should be adapted to you.

One is mathematically quicker, the other potentially more motivating. It could be argued that this is, therefore, more efficient for some as you will be more motivated and likely to last the distance.

Ultimately, pick the approach which is right for you. And tweak it if you need to. Take the framework and principles, then make it suite your circumstances and personality.

In reality, which is the quickest method is irrelevant. Fundamentally, the quickest way of pay off debt is by:

Making the decision and taking action TODAY

Create a plan and STICK TO IT

BE CONSISTENT, stay focused on your motivations and go the distance.

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EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. Investments may go up as well as down and you may get back less than you put in.