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

A lot of people tell us that they would love to pay down their debt or completely get rid of it altogether, but they aren’t quite sure of the best way to do it or where to get started. There really isn’t any one “best way” that works perfectly for everyone. So here are a dozen proven suggestions to get you started. The more of these you can apply, the faster you will get out of debt.

1. Pay More Than the Minimum

Make sure that you always pay more than your minimum payments on you credit cards, overdraft, or line of credit. If you only make your minimum credit card payments each month, it can literally 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 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 cash back, 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.

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.

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 pool. 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 massive difference. However, instead of going cold turkey and selling your second car right away, try test driving this idea first. Parking your car for a while, drop 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 pay keeping your second vehicle permanently. If there is any chance that transit might work for you, this option alone is often 80% cheaper than owning and operating a vehicle.

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.

You could also consider generating some extra income to pay down your debt by capitalizing on a hobby you enjoy, or a skill set you might have. For example, if you happen to be a good writer, consider freelancing articles for blogs, newspapers, media outlets, or on a freelance website. If you’re crafty, consider selling your creations on Etsy. If you're a handyman, see if you can pick up some extra jobs (you may even be able to find websites that can help connect you with people who need your skills).

Some people also use their home to generate some extra cash. Is it possible for you to rent out your basement, rent out the storage space in your garage, rent a room in your house (you could maybe do this on Airbnb), or can you take in a student for some extra income?

8. Track Your Spending and Identify Areas to Possibly 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.

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

11. Speak with a Credit Counsellor - It's Free

If you are in debt and are really struggling to make any headway paying down your debt, 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 help 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. Speaking with a non-profit Credit Counsellor about your options is confidential, non-judgmental, and usually free.

This article was originally published on May 3, 2010 but has been updated several times since.