Paying Off Debt Quickly Even When You’re Broke

Want to pay off your debt quickly, but not sure how because you have a low income and your bills are high?  Are you wanting to pay off your debt fast so you can meet some other financial goals?

Debt comes in many forms.  Student loan debt.  Consumer debt (read: credit card debt).  Mortgage.  Car loans.  And according to Bankrate, the average American carries a whopping $92,727 in debt in 2021, for a combined total of over 14 trillion dollars.

Debt payoff is often part of a bigger strategy to building personal wealth, but it’s also a lofty goal in and of itself.  In my opinion, the best way to succeed at paying off all your debt is to develop a plan.  That’s what I did when I paid off nearly $27,000 in just over a year.

Of course everyone’s debt payoff strategy will be different, but there are also some tried and true methods to paying off debt fast. Like setting a budget and decreasing your spending.  Beyond that, there’s still a lot you can and should consider when creating your debt payoff plan.

Determine the Extent of Your Debt

If you don’t already have the number in your head, I want you to rip that Band-aid off now, a-la Isla Fisher’s and Krysten Ritter’s characters in Confessions of a Shopaholic, where they break out the alcohol and add it all up.

Open up an Excel sheet and list every single debtor, the minimum monthly payment, and the amount you paid in interest on that debt last month.  Or, if you’re old school or don’t have an Excel-like program, just write it all down and use an old-fashioned calculator to add everything up.

Don’t skip anything except maybe your mortgage. (Or if you’re really going at it like a boss, add in the mortgage!)  Any loans, credit cards, student loan debt, money you owe your friends or your family, everything.

You can’t know how bad it really is until you see it in black and white. Even if it’s painful, it’ll give you the perspective you need to see how much your debt is really costing you.

When I did this exercise, I found out that my husband and I were spending $365 every month just in interest!  It pissed me off enough to give me the shove I needed to get started.  All I could think about was what I could do with an extra $365 each month, not to mention the amount I was paying on the principal of each debt.

Over a year, that would be more than $4,000 in my pocket.  I could invest that money for my retirement, or buy a vacation.  Over the course of four of those years, I could buy a gently used, new-to-me car.

Hell, I could throw it on the bed and roll around in it.

A girl has dreams.

Stop Using Credit

It’s time to break up with credit.  The relationship is toxic, and the privilege of using credit is costing you a fortune every month. This is especially true where your debt is couched in consumer credit like credit cards with their sky-high interest rates.

That isn’t to say you should stop using your credit cards forever. But you should at least stop using them until you’re done paying off your debt. Then you can use them only if you intend to pay off the balance in full every month.

Many people do this to take advantage of the rewards many credit cards offer, but I only recommend doing this if you know you’ll only spend on those cards when you already have the money in the bank to pay them off.

You should be working on saving up for your next major purchase, such as a new-to-you car or a vacation.  Stop thinking you can use credit and then pay off the debt later.  That, my friend, is exactly how you got into this mess.

Rather, have the mindset of saving first for what you want—this will save you tons of money in interest. And you’ll sleep better at night knowing you don’t have that nasty payment coming up.

Make this commitment now, and at the very least, don’t use any credit while you’re paying off your debt.  You can maybe use it again once the debt you have is paid off (except maybe your mortgage), but you should take your own psychology into account before doing this.

For now, just consider any further credit usage to be a big no-no.

Develop a Budget

If this isn’t the first debt payoff post you’ve read, you’ve probably already heard that you need to make yourself a budget.

I hate to break it to you, but everyone is right.

The good news is, you don’t have to keep this budget forever.  In fact, once you’re done with debt payoff, you’ll probably create an all-new budget to allocate where all your newly freed up monthly income is going (which, as a total personal finance geek, I find immensely exciting).

There are a ton of different ways to make a budget out there, from the half-payment budget method to the zero-based method (I use both of these). But when it comes down to it, budgets are not complex or scary at all.  If you haven’t done one yet, you’re dreading it for no reason.

Budgets are premised on two simple factors:  dollars in, and dollars out.

Dollars In

To build a basic budget, simply list out all of your income streams and how much you earn from each one a month.  You may have only one form of income—as in, your job—or you may have a number of them.  Maybe you get child support, or maybe you have a side hustle—and if you do, good for you!

List out all your income but don’t include savings and investments that you aren’t realizing.  For example, if you have a 401(k) that’s trending upward at 8%, don’t include those gains because you’re not actually bringing those dollars home.

Which leads me to a good point:  only count your take-home pay, not your taxes or any other money that doesn’t support your current household needs.

Congrats, you just finished the “dollars in” half of your budget!

Dollars Out

Dollars out can be a little more demanding, only because it can be difficult to consider everything you might need to spend money on every year. But this should include all your static bills, like your rent or your mortgage. Also included should be your occasional bills, like car tax renewal. Finally, don’t forget to include your variable expenses, like groceries or clothes.

Again, I like Excel for this, but if you want to write it all out, do whatever works for you.

The point is, you can’t know how much money you really have until you list out all of your expenses and gauge it against how much you’re earning each month.

Look for Places to Make Changes

Once you’ve developed your budget, determine if there are areas where you have undershot your spending.  You may think you only spend $30 a month on eating lunch out at work, but a review of your bank statement may tell you otherwise.

Are you also spending in areas you haven’t accounted for?  Maybe you spend $20 on makeup every month, or you have to have the latest Air Jordans and that sets you back twice a year.  Everyone has their poison, and it’s critical that you identify it so you can control it.

Personally, I love eating out—I avoid spending in most other areas, sometimes to a critical point.  (When did I buy clothes last?  I don’t know, but nothing fits right anymore and all my shirts have holes in them.)  But eating out is my Achilles heel.  If I don’t plan meals in advance, I run the risk of saying, “Fuck it, let’s go grab some Popeye’s.”

I just spent $35 on bad-for-you food when I could have used ingredients I’d already bought to make a way more nutritious and satisfying meal at home.

I know that I need to think about dinner at least a day in advance to ensure I pull meat out of the freezer and pop it in the fridge to defrost.  Identify your weakness so you can plan around it.

Lessen the Expense-to-Income Ratio

Here’s where the “even if you’re broke” part begins to come into the “Pay Off Debt Quickly” scenario.

If your take-home pay is $2,000 a month and your expenses come to $1,990 per month, you don’t have any extra money for paying off your debt faster than you already are.  This is a huge problem for someone who wants to pay off debt quickly.

You have two options from this point:  decrease your spending, or increase your income.

Decrease Expenses

I like to do both where I can, but if you can find substantial areas to cut in your budget, do that first.  That will help you understand how much you need to increase your income later.

Look back at that budget you created.  Where are some areas in your variable spending where you can find some dollars to pay down your debt faster?  If you’re like me, you can probably take away some eating out dollars and apply them to your restaurant.

Can you buy cheaper versions of items at the grocery store to keep your grocery budget down?  Can you put off buying clothes for the next six months?  Can you avoid the movie theater?  Cancel your subscription to Disney+, Netflix, Hulu, or Audible?

Do you need to go to the gym just to run on the treadmill, or can you run outside for free?  Or do you really need a yoga class when Youtube is full of great yoga content you can do at home for no cost?

Increase Income

The second half of the “even if you’re broke” equation is finding ways to make additional money.  A simple search on Google will reveal a vast variety of ways to earn additional income.

Ideas for increasing income include side hustles, extra jobs, starting a business, consulting, or pulling extra hours at the job you already have.

Even if you have kids at home and can’t get a second job, there is a ton of work available out there for people to work from home with limited or no experience.

I recommend finding something you can do even after your debt is paid off. Creating a new stream of income provides a lot of financial security, and building those streams can eventually allow you to quit your day job, you know, if you’re into that kind of thing.

Given my blog name, I think it’s a given I believe in this.

Negotiate Bills or Shop Other Providers

Another way to lower your expense-to-income ratio by lessening your expenses is to negotiate your fixed bills or shop from other providers.

For example, if you’re still using a big brand name phone carrier, call them. Ask if they have any special deals or a way you can lower your existing bill.

If they don’t have any ways for you to lower your bill, see if you can find another provider who will provide similar services for less money.  This is great for all kinds of insurance, phone bills, cable, and more. Though I do recommend you cut the cable cord.

Sometimes when you shop other providers, you can use their quotes to get a better deal with your current provider.  For example, if I like Verizon, but T-Mobile offers me a better rate on similar services, I can bring that quote from T-Mobile to Verizon and use that as a bargaining tool.

Obviously, this doesn’t always work, but sometimes it does, and you’ll feel like a million bucks when it does.

Allow Some Leeway

This is going to sound counter-intuitive, and I don’t mean to confuse you, but you should allocate some dollars to the things you love.

You, of course, have to determine the right number of dollars and the right frequency for this. But you should definitely have dollars set aside for doing something fun or indulging in one of those things I just said you should look at giving up.

I liken it to a cheat day when you’re working on a diet.  We all know that going cold turkey has a hard time working.  A cheat day allows you to indulge a little in what you like. It prevents you from going crazy after four months of painful exercise and carrot sticks just to end up bingeing on pizza and beer with a side of French fries and a quart of ice cream for dessert.

Giving yourself a few dollars to spend on what you love functions the same way.  After all, what is life for except for doing things we like?

Yes, it will slow you down a little, but I believe that in the long run it will keep you from backsliding into a spending spree at your retailer of choice.

There are a lot of ways you could go about this.  Personally, I love taking my family out on fun adventures, so I put a little money aside each paycheck to spend on those things.

I can spend that money whenever I like, so if I have $60 in that fund and I want to take my family to the movies, I can do that.  If I want to do something more expensive, like take the family out to an escape room or to a national park over the weekend, I have to save up longer to do that. If you don’t want to spend or save dollars each month, you could opt to use the debt-payoff funds on a pre-scheduled basis to buy whatever you like.  This could be once a quarter or twice a year—whatever works for your budget and your goals.  You have options!

Emergency Fund First

Here’s another thing you might feel is slowing you down but can really help in the long run.  You should really set up a start emergency fund before you begin working on debt, if you don’t already have one.

Why?  Because if you run into a need to spend money—like a sudden need for a car or home repair or health emergency that you weren’t expecting, it helps to have cash in the bank to pay for that so you aren’t using credit once again to make ends meet.

If you follow Dave Ramsey, you might set a goal of $1,000.  As far as arbitrary dollar amounts go, I think it’s a nice round number and will handle a lot of emergencies really well.  But I have a better method.

You should choose your highest deductible of all your insurance policies and save that amount instead.  So if you have a health insurance deductible of $1,000 and a car insurance deductible of $2,500, save $2,500.

For disability insurance waiting periods, you would use the loss of income over the waiting period.  For example, if you have a one-week waiting period on your short-term disability plan, you would save a week’s worth of take-home pay rather than a deductible, if that amount is higher than any other deductible.

Better yet, lower your insurance rate by raising your deductible and then save the higher deductible amount.  Over the years you will save more money going this route, as long as you aren’t consistently having to pay the deductible year over year.

If you consistently use your insurance and pay your full deductible year after year, you may be better off keeping a lower deductible and paying the higher premium.

Try Debt Snowballing or Debt Avalanching

If you don’t know Dave Ramsey, first I want to know what rock you’ve been hiding under.  And second, I think you should go check out his advice on the paying down debt. You don’t want to stick with him forever, but he’s good at getting people started on the right financial path.

Debt avalanching is the savvier way to pay off your debt quickly.  With this method, you’ll pay the minimums on all your debts.  Then, you’ll choose the debt with the highest interest rate and throw all your extra monetary weight at it.  Those dollars you found when you were decreasing your expense-to-income ratio all go on that one debt.

Once that first debt is paid off, you move on to the debt with the next highest interest, and you take all the money you were paying on the first debt and add it to the money you were paying on the second debt.

This way, you pay off the debt with the fastest interest accrual first, which means you’ll end up paying less in interest over the course of paying down debt.

For example, let’s say I have two debts.  One is for $2,000 and the minimum monthly payment is $60.  The interest rate is 25% on that debt.

The second debt is for $1,000 and has a minimum payment of $30, and the interest rate is 12%.

And let’s say I have $110 in my monthly budget that I can allocate to debt on top of the minimum payments.

Using the debt avalanche method, I’m going to pay the $2,000 debt first at a rate of $170 per month ($60 minimum plus $110 in debt-allocated dollars), and pay the second debt at a rate of $30 per month (just the $30 minimum).

I’ve chosen the $2,000 debt because it has the highest interest rate and is therefore costing me the most per dollar owed.

Once my first debt is paid off, I’m going to focus the $170 I was paying on the first debt onto the second debt, in addition to the $30 minimum monthly payment the second debt requires.  So now I’m paying a total of $200 on the second debt ($170 from the first debt plus $30 for the monthly minimum).

Debt snowballing, while not as efficient, is the more popular method, and for good reason.

In this method, you’ll once again pay the minimum on all your debts, but the special debt you choose to pay off first is going to be your smallest debt rather than the one with the highest interest.

This method is more popular because it works really well with human psychology.  Getting that first win on paying off a debt and snowballing it with your next debt feels really good.  So good, in fact, that it can motivate us to find even more money to put on debt.

Use Interest-Lowering Strategies

There are a couple of common strategies for lowering the amount of interest you pay on debt every month.  Both work well but may be more or less valuable to you depending on your personal psychology and your bank.

Consider taking on a personal loan from your bank to consolidate your debt into one payment at a lower interest rate.  Bank loans nearly always cost less than high-interest credit cards and can save you hundreds of dollars every month in interest.

Remember when I said I was paying $365 a month just in interest?  Imagine if I’d been able to cut my interest down by even 30%.  That would’ve saved me about $110 a month, which I could have applied to the principal on my debt and paid it off even faster!

You’ll need to check with your bank or credit union to see if they offer these types of loans.  Take a loan only for the debt that has a higher interest rate than the bank loan, then immediately pay off your other debts with that loan and start paying off the loan.

The other method you can consider for lessening your interest—at least in the short-term—is to transfer your balance to a new credit card with a zero percent interest rate.

Especially if you know you’re going to pay off a debt within a few months, this can be a great way to save all of the interest on that debt and apply all that money directly to the principal.

Keep in mind that opening a new credit card will temporarily lower your credit score.  Hopefully, you’re not using credit right now anyway, but if you need your credit score to be high in the next several months to a year, you may not want to use this method.

You also need to consider whether this method is right for your psychology.  There’s no use in transferring a balance if you’re going to miss the deadline and end up paying the higher interest rate.

Be wise.  Calculate how much you can pay off and how quickly, and avoid transferring money that will ultimately end up with worse interest terms than the old debtor gave you.

Apply Extra Income to Debt

Ah, one of my favorite methods!  This is the blitzkrieg of paying down debt and your secret weapon.  Throughout the year, many people find “extra” income that they didn’t realize they had, or income they usually apply to other things.

Maybe it’s a stimulus payment (hello, pandemic).  Perhaps you get a bonus at work.  If you’re paid weekly, it’s that fifth check in the month that you get about once a quarter, or if you’re paid bi-weekly, it’s that third check you get every six months or so.

(Sorry, if you’re paid semi-monthly, there are no “extra” checks.)

This can also be a tax refund or a raise, or a reimbursement from work when you’ve already spent the money.  Maybe your grandparents gave you money for Christmas.  Or a long-lost relative left you a sum of money in their will.

When you get these extra income opportunities, your first thought should be to give that money over to your debt.  If it’s not going onto debt, you should really be able to justify why any of that money is going somewhere else, and where exactly it’s going.

One of my favorite exercises to do when my employer has informed me that I’m getting a raise, is to calculate exactly how much extra money I’ll be seeing each paycheck, and then deciding ahead of time where that money will go.

If I don’t, I tend to end up spending it on—well—eating out.  Haha.  Or I just leave it in my “miscellaneous” pile of money and it gets spent on who-even-knows-what-because-I-damn-sure-don’t.

Actually, one of my favorite strategies to add a little extra cash to quickly pay off debt is to check my bank account the night before payday and zero it out by applying all leftover money to my debt.

I use a modified zero-based budget, so it might only be twenty dollars or so, but you do that enough times, it adds up (and keeps you from spending it on junk you don’t need).

This avoids any lifestyle creep and allows me to allocate those funds responsibly before I even get them.  I decide if I want to put them into a special savings account or increase my 401(k) dollars, or something else.

When you’re in the debt payoff phase, you should look at it as an opportunity to pay off your debt faster.

Avoid Spending Triggers

One of the easiest ways I avoid spending is I stay out of my favorite stores, whether it’s a brick-and-mortar store or a favorite online retailer.  I don’t window shop.

And I eat before I go grocery shopping to avoid buying the whole store, because guess what?  I love to bake, and if I’m hungry, it’ll sound like a great idea to bake things that are bad for me anyway and that I don’t need.

It’s important that you identify your spending triggers.  If looking at beauty magazines makes you want to buy makeup or weight loss supplements, you should avoid looking at beauty magazines.

If watching the NBA makes you want to buy new basketball shoes when you have a perfectly good pair in your closet, find another source of entertainment.

My husband loves to watch PC building videos on Youtube, and guess what?  He does most of his spending on PC components.  There is a clear link there.

That’s not to say you can never enjoy these things again. But I recommend both avoiding them altogether during your journey to pay off debt quickly, and lessening the amount of time you spend on indulging in these triggers later on when you’re moving onto the next financial goal you’ve set for yourself.

If you know you love fashion, it’s better to have a savings bucket specifically for clothes and makeup, and then to spend some time looking at the latest trends when you have some money saved up so you can make some smart buys.

It’s less advantageous to mindlessly surf your favorite fashion blogs and risk spotting a look you just have to have right now.  Impulse buys are your enemy.

Discover Free Hobbies

Finally, if you’re going to avoiding expensive hobbies, you might want to go looking for some inexpensive or free hobbies.  Otherwise your life is going to get really dull and you’re going to backslide.

Crafting is a lot of fun, but unless you’re making cash off your crochet designs, you might want to spend some time instead learning to draw using free Youtube how-to content.  Cultivate that new skill!

If you have a health goal, it’s never been less expensive to find free HIIT courses and dance lessons online, and the internet is jam-packed with new recipes to try that fit any and all kinds of diet regimens.

Have you always wanted to learn a new language?  Instead of mindlessly surfing Netflix for hours on end every night, try spending that time learning from a free podcast (I’ve been using Coffee Break Italian for about two years now and I’m intermediate level).

I’ve always loved views and exploring new places, and so we set a goal to hike more while paying off debt.  It’s healthy and gives me that “new place” feel that I crave out of life.  As a bonus, the only cost is the cost of gas to get to the trailhead.

This isn’t to say you can never go back to your old hobbies and interests, but you should limit them to the dollars you’re setting aside for those things as we outlined in the “Leeway” strategy.

I’ve found that your free and inexpensive hobbies tend to be the ones that improve you.  They improve your skills or give you new ones, improve your health, your brain function, or more.  You may even find that you can monetize those hobbies and new skills later on!

What Strategies Do You Use to Pay Off Debt Quickly?

Any of the strategies we’ve talked about here will be helpful in getting your debt paid off quickly, no matter your income level.

Some of them are must-dos, like developing a budget and understanding your total debt; but other strategies can be chosen depending on your lifestyle, needs, and personal psychology.

Nobody is the same and nobody’s debt and circumstances are the same, so you should customize your plan to you! If you have other strategies you use that have helped you pay off debt quickly, share with the class via comment below.



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