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12 of the Most Effective Ways to Get Out of Debt

Many people would love to pay down their debt or get rid of it altogether, but they aren’t quite sure of the best way to do it. There really isn’t any one “best way” that works perfectly for everyone. So here are a dozen suggestions to get you started. The more of these that you can apply, the faster you will get out of debt.
Effective, fast ways to pay off debt and get out of debt quickly.

1. Pay More Than the Minimum

Make sure that you always pay more than your minimum payments. If you only make your minimum credit card payments each month, it can take forever to pay off your balance. If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!

2. Spend Less Than You Plan to Spend

Most of us have wishes and wants that are bigger than our pay cheques. You might have heard the great saying that, “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 though, studies seem to show that people tend to spend at least 15% more on everything they buy when they use credit. If we apply this concept to an average Canadian household that currently buys everything with credit cards to collect points or get cash back, they would likely save well over $3,000 per year if they only bought things 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 the point here. If you want to get out of debt, leave the cards at home, use cash, and don't buy things with credit until your finances are back on track.


More that may interest you:

A Concise Overview of How to Get Out of Debt

8 Ways to Consolidate Your Debt

How to Create a Budget

How to Pay Off Your Debt Faster

How to Get the Lowest Interest Rates



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 that one off 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, sometimes referred to as the snowball method, will get you out of debt quickly, and you will feel encouraged as you see your progress.

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

Dave Ramsey, a 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.” 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. Also read reviews online and see what others have to say.

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 for another new car.

5. Consider Becoming a One Car Household

If your family has two cars, consider getting rid of one and either walking to work, taking transit or car pooling. You can literally save yourself thousands of dollars a year by only using one car. The average vehicle owner spends over $9,000 per year to own and operate their vehicle. If you use this money to pay down your debt, it will make a huge difference. Instead of going cold turkey and selling your second car right away, test drive this idea first. Try parking your car for a while, dropping the insurance down to pleasure use only and see if taking transit, walking, cycling or car pooling works for you. If you do decide to sell your second car, even the odd taxi trip or rental car won’t amount to nearly as much as you would spend on keeping your second vehicle permanently. If transit is in any way a possibility for you, this option alone is often 80% cheaper than owning and operating a vehicle.

6. Reduce Your Grocery Bill

To save money, 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 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 will still save you a good amount of money.

Related: 12 Ways to Save Big on Groceries & Shop on a Budget | 25 Budget Grocery Shopping Tips to Save More Money

7. Get a Second Job and Pay Down Your Debt Aggressively

Getting a second job, or consistently picking up an extra shift or two, is a common way for many people to pay down their debt. This doesn’t work for everyone, but if you can make it work, you could be debt free within a short number of years. For this to work, you must apply all of your extra income to debt repayment. Working the extra shifts or hours also doesn't need to be permanent. Once your debts are paid off, you can look at scaling back again.

8. Track Your Spending and Identify Areas to Cut Back

For some people, doing this can save them almost as much money as working a part time job. You won’t know how much you can save unless you give this a try. Track what you actually spend—not what you think you should be spending, over the course of a month. If you aren’t honest with yourself in this exercise, it won’t work, but most people are surprised by what they find out about their spending. Once you know your spending habits, you should be able to identify areas where you can cut back. Allocate the money you “find” to paying down your debts.

Related: 10 Places to Find Money to Save Every Month

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 you if you create a budget that allows you to save some money every month. Savings isn’t usually what someone in debt thinks of first, but if you don’t have savings, you will likely need to reapply for credit cards part way through your loan and then rack up more debt. The end result could leave you worse off than before.

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).

Just like with a debt consolidation loan, when you consolidate debts into your mortgage you also need to create a budget that allocates money to savings. If you don’t, you’ll always be tempted to borrow more when “emergencies” arise. Repeatedly using your home as an ATM 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.

11. Speak with a Credit Counsellor

If you are in debt and think that bankruptcy might be your only solution, start by speaking with a Credit Counsellor. Find out what programs are available to help you deal with your debts. A reputable Credit Counsellor will explain all of your options and let you choose the option that makes the most sense for you in your situation. Many people don’t know what they need to know about debt repayment programs at non-profit credit counselling organizations but most are relieved they took the time to find out before it was too late.

12. Create a Spending Plan

Ok, 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.

How to Get Help to Get Out of Debt 

If you are struggling to get out of debt, ask for debt relief help sooner than later. Not only will you feel better knowing what to do, you'll have more options available to you. An accredited Credit Counsellor at a non-profit credit and debt counselling organization will help you budget and create a plan with debt solutions that work for you. You've got nothing to lose and everything to gain!