How To Get Out of Debt

If you’re wondering how to get out of debt, you’re not alone. I paid off $30k of debt in 9 months on a $68k salary and I’m here to tell you that getting out of debt even when you feel like you’re broke is possible. Consistently and quickly. In this blog post we’ll explore steps you can take to do it even on an average wage.

What is debt?

Debt is money you owe to a bank, an individual or a financial institution.

This getting out of debt blog post will talk about consumer loans – credit cards, personal loans as well as buy now pay lender loans. These are generally considered bad debts.

Why are credit cards and personal loans bad debt?

Bad debt can be a significant source of stress and a financial burden. Credit cards and personal loans are considered bad for a number of reasons:

• It’s money you don’t actually have and most of it is spent on things rather than assets (like a mortgage or an investment loan).
• Credit cards and personal loans cost a lot in interest.
• They encourage mindless spending and overspending.
• They are not an Emergency Fund.
• They can negatively impact your credit score.

Bad debts are literally robbing you of financial freedom. They can cost thousands a year in interest. And most of the money, I know this from my own experience, is spent on things you probably don’t need.

How to get out of debt

The first step is to create a budget. You’ve probably heard it a million times. Because it’s true. Budgeting is what helped me get out of $30k of debt in 9 months.

• Start a budget – I’m all about creating happy budgets with room for things you love.
• Find savings on everything
• Prioritise debt payments as your number 1 goal

Creating a budget will help you track your income and expenses, and identify areas where you can cut back on spending. Be sure to include minimum loan repayments in your budget. You will be able to see your position with instant clarity.

Want to take immediate action to shift your spending, learn how to pay less for everything and pay off debt consistently and fast? ↓↓↓

Get out of debt when you are broke

Getting out of debt when you are broke, and already living paycheck to paycheck, sucks. I know because I was there. Drowing in debt with $0 in my bank account before pay day. I knew I needed to do something. Actually, more than that. I wanted to do something to get out of it for good.

If you’re serious about paying off debt even on a low income, use my PPE framework.

Prepare, plan, execute.

This is the framework I teach in my SUPERCHARGE YOUR SAVINGS & INCOME program. In fact there is a whole big unit on paying off debt consistently and fast in there. Strategies to find savings on everything and tools like my debt pay off calculator to help speed things up. ↓

1. PREPARE

Having a budget will help you find areas where you can cut or reduce spending.

2. PLAN

Your next step is to find savings on absolutely everything (the strategies I teach save my students $165 a week on average – you can see for free what SUPERCHARGE is all about here).

3. EXECUTE

Adjust your budget. Tilt money toward your goal. Look for ways to save money on things you’re already buying and earn extra income. Sell items you no longer need, or take on a side hustle. Throw every extra dollar you earn towards paying off your debts.

Paying off DEBT

So now that you have your budget in place, let’s have a look at how to pay off debt quickly. Using a debt pay off calculator can definitely help – more on that below. Paying less for everything is key too. And we’ll look at different pay off methods, too.

READ ALSO: What is an Emergency Fund and How To Set One Up

How to pay off debt quickly?

I’m glad you asked. I paid off $30k of debt in 9 months on a $68k salary (my goal was to do it in 12 months). This shows you it’s possible to to pay off your liabilities quickly. Many of my students are doing the same.

Getting out of debt requires discipline, focus, and persistence. I might sound like a broken record but there are 3 steps to paying off debt quickly:

• Start a budget – I’m all about creating happy budgets with room for things you love.
• Find savings on everything
• Prioritise repayments as your number 1 goal

By creating a budget, prioritising your repayments and saving money on expenses you can get out of debt fast and achieve financial freedom sooner. You can also speed up the process by finding side hustles to boost your income (and throw all that extra money on debt).

Use a debt pay-off calculator

Using a debt pay-off calculator can be helpful if you are looking to pay off your loans and liablities as quickly as possible.

My debt pay-off calculator (included in my SUPERCHARGE YOUR SAVINGS & INCOME program) allows you to:

• experiment with different payment methods like snowball or avalanche.
• see instantly what impact increasing your monthly payments can have.
• see instantly what impact once off lump sum payments can have on your debt repayment timeline.

Pay off higher interest or higher balance?

It’s really up to you. The most important thing is that you continue to make at least minimum payments across all your debts. And on time. This is important to keep a good credit score.

Let’s have a look at just a couple of the debt pay off strategies that you can use.

Best debt pay-off methods

Speaking of strategies… My debt pay-off calculator (included in my SUPERCHARGE program) will allow you to experiment with different payment scenarios and debt reduction methods.

You can choose from the following built-in methods that will show you your debt-free date instantly:

• the snowball method
• the avalanche method
• the mixed method
• custom debt pay-off strategy

The calculator will also show you the impact additional repayments can have on your goal.

Snowball method debt reduction strategy

The Snowball Debt Payoff Method (built into the debt pay off calculator included in my SUPERCHARGE program) is a popular repayment strategy that involves paying off your debts in order of smallest to largest balance, regardless of the interest rate.

• Make the minimum payment on each debt, but put any extra money you have towards paying off the smallest balance first.
• Once you’ve paid off the smallest balance, take that money and apply it to the next smallest debt on your list, while still making minimum payments on all others.
• Repeat this process until all debts are paid off.

The idea behind the Debt Snowball Method is that paying off smaller amounts first gives you a quick win. It’s incredibly motivativating to keep you going. As you pay off each debt, you’ll have more money to put towards the next one, creating a snowball effect that helps you pay off your liabilities faster.

Avalanche debt pay off method

The Avalanche Debt Payoff Strategy (built into the debt pay off calculator included in my SUPERCHARGE program) is another popular method for clearning your loans. Unlike the Snowball Method, this strategy focuses on paying off debts with the highest interest rates first. This is because they cost the most money.

• Make the minimum payment on each liability, but put any extra money you have towards paying off the debt with the highest interest rate first.
• Once you’ve paid off the loan with the highest interest rate, take the money you were putting towards it and apply it to the next debt with the highest interest rate, while still making minimum payments on all other loans.
• Repeat this process until all debts are paid off.

By eliminating your high-interest debts first, you’ll pay less interest over time, which can help you become debt-free faster. However, depending on your loan balances, it may take longer to see progress compared to the Snowball Method.

Paying off and closing a credit card

Getting your first credit card seems a like a rite of passage into adulthood. Except we live in a world where instant gratification trumps common sense (no judgement, I was there). And leads to debt you then have to pay off. I still have no idea how I was offered a credit card working casual wages while in high school…

Two reasons why I closed my credit card account for good and now only use cashflow:

• Having a credit card can be an okay strategy if you have a mortgage. The idea is to use it for all your expenses, then clear it each month. The problem I saw with that? Mindless overspending.
• Additionally, if you are trying to get a mortgage, every $1,000 in credit limit can affect your borrowing capacity by $5,000-$10,000.

Buy Now Pay Later debt (Incl Afterpay, Zip, Klarna, Latitude Pay)

Similar to credit cards, using a buy now pay later (BNPL) services can lead to mindless overspending and debt – this mum blew $80k on it… Remember, the small amounts add up to big money.

Again, when applying for a mortgage, I was advised to close my BNPL account to increase my borrowing capacity. I applied for the accont when there was a $20 off promotion on pet food I needed. I hadn’t used it after that so I was happy to close it.

Does Afterpay affect credit score?

While Afterpay does not list the account on your credit file, when assessing your eligibility for a mortgage, the bank may ask for your bank statements. In which case, your Afterpay payment history will show and may affect your borrowing capacity.

Even if you make payments on time, some BNPL services report larger loans to credit reporting bureaus and this could affect your credit score. I know for a fact Latitude Pay did as that was the account I had.

And you don’t have to have an outsanding debt. Some BNPL services also perform a credit check when you sign up for an account. This can be visible to other creditors in the future. In which case they might ask for statements showing those payments specifically to asses your money habits.

My debt is with a collection agency, what now?

If your debt has been sent to a collection agency, it’s important that you take the situation seriously.

When debt collectors started chasing me for money, I knew it was time to take action. I set myself a goal of paying it all off in 12 months and threw everything I had at it. I now share all my strategies, money-saving tips, debt pay off tools and more in my SUPERCHARGE program to help you do the same, even on an average income.

5 steps you can take if your debt is with a collection agency

1. Don’t avoid it

It’s best to tackle it head-on. Debt with a collection agency can negatively affect your credit score (further) and lead to legal judgments against your name. Prioritise this one.

My debt pay off calculator – included in my SUPERCHARGE program – has a built in custom mode where you can prioritise repayments with a collection agency.

2. Ask for a lump sum discount

If you’ve got money saved, you can use to pay the debt in full. But first, ask for a discount. This might be in the form of reduced or cancelled interest. Most agencies will reduce the total amount if you ask.

3. Negotiate a debt payment plan

If you can’t pay off your debt in a lump sum, negotiate a payment plan. Prioritise this payment each paycheck. Find ways to save money and boost your income to pay it off faster – you can watch this free session to see I can help you with that.

4. Make payments on time

Pay on time to avoid additional charges and further damage to your credit score. Set up direct debit or automatic payments for the day you get paid to prioritise this expense.

5. Stay in communication with the collection agency

Be honest, always. Be proactive with communication. If you’re going to miss a payment, call the agency ahead and ask them to reschedule the payment. When you have extra money, make extra payments to clear this one first.

WANT TO LEARN MORE ABOUT HOW TO PAY OFF DEBT FASTER?