This is one of the steps on how to pay off debt quickly. Developing a budget that maps both your income and expenses is critical to getting out of debt.

By knowing how much your net income is, you’ll know how much extra money you have, which is also called a surplus, or if you are in the negative, which is a deficit.

Gail Cunningham of the NFCC indicates that it is almost always better to cut back than to cut out.

The aim should always be to increase your surplus and use it towards your credit cards.With a realistic budget, you can get a clear picture as to which areas (e.g. grocery, gas, and miscellaneous expense) you overspend and need to cut down. This will free up some money for credit card payments.

Earn more and cut more.

The best way to increase your income is through earning extra money. Frankly, this may be one of the best ways on how to pay off debt in a year.

This can done by working on a second job, establishing and operating a business on the side, or anything along that line. On the same token, the best way to decrease your expenses is to cut more on unnecessary expenses.

Now, there may be an increase in expenses tied to getting a second job or business on the side. But the key point here is to a have surplus than a deficit.There are ways to cut down on expenses.

Go over line by line on your budget and see where you can make adjustments. It may involve cutting back on travel, eating out, among others.

If you want drastic adjustments, you can cancel your cable subscription and switch to Netflix or Hulu, just for example.

Other ways that you can take advantage of are selling stuff on Ebay, Amazon, and Craigslist, returning unused items with receipts, making arrangements with your utility company on paying flat rate/month, growing a garden, just to name a few.

If you really are dedicated to paying off your credit cards, you’ll make sacrifices in the short-term in exchange for something better in the long-run.

The more committed you are, the easier it is for you to take away some unnecessary wants in your life.

Read: How I Paid $40K Of Debt and Saved $70K in 2.5 Years

Make a list of your debts.

This is one of the steps to pay off debt. It is much easier to say that your credit card debt total this amount or that amount.

But until you sit down and note all the amounts and interest rates, you won’t know the truth about your credit card situation.

By understanding which card has the biggest balance, highest interest, or the polar opposites, you can devise a strategy on how to address your credit card situation.

Pay off the card with the highest interest rates.

It sounds intuitive to do just that. But if you have a card with a high balance but lower interest rate and a card with low balance and high interest rate, then, the decision to which one gets tackled first becomes difficult.

There are two strategies to paying off your credit cards, both of which have pros and cons.

Snowball Strategy. The snowball method involves listing down all your credit card balances and, then, tackling first the one with the smallest balance.

You pay off that one aggressively while paying the minimum amount on the other credit cards.

Once the first one is eliminated, then, you go to next smallest balance and repeat the process over and over again until you’ve paid off everything.

Pro: You can easily see the cards get paid off right away, which makes you feel better right away.
Con: You run the risk of paying off the cards (with low outstanding balances) that might also have the lowest interest rates. If that happens, then, you will be paying more interest in the long-run because the cards that are at the bottom of your to-be paid list are those with high interest rates.

The Avalanche Strategy: The avalanche method is the opposite of the snowball method, except that you’re paying off the card with the most expensive balance, which is typically the balance with the highest interest rate.

You pay off the card with the highest interest rate and pay the minimum on the other cards. Once paid off, you move to the next and repeat the process.

Pro: You are paying less in total interest because you eliminate the ones with the highest interest rates right away.
Con: It may take you a while to see the cards getting paid off because these cards tend to have high outstanding balances.

If you are motivated to eliminate your debts in shorter time and pay less in interest as a result, then, almost always try to pay off the card with the highest interest rates.

Though you may not see the immediate effects of the avalanche method, you’ll save more on total interest paid in the long-run.

Read: Credit Card Vs Loan Interest Calculator

Consolidate your debts to pay off debt.

This is one of the best ways on how to pay off debt and raise credit score as well.

From time to time, credit card companies offer debt consolidation promotions for their customers. If you are offered such opportunity, consider grabbing that as soon as possible. But don’t consolidate just for the sake of consolidation.

Offers come with a 3-5% one-time balance transfer charge and you should factor this in when deciding whether to consolidate or not.

Second consideration is to determine which card will be used to consolidate all other credit cards. If your card with the lower interest rate has a debt consolidation offer, then, avail the offer and transfer your credit cards with much higher interest rates to it.

Even when paying the same amount per month collectively, you will actually be paying less in interest through consolidation versus individually paying the cards. Never consolidate debts using offers from your credit cards that have the higher interest rates. It just won’t make sense to pay more in interest.

If you are lucky, some companies offer debt consolidation with no interest charge for a couple of months. If that happens, grab such offer but make sure you do your due diligence of calculating whether it’s the best route to go for.

If the offer is only for 3 month and the fee is 3%, it may not be financially sound to do such consolidation. However, if it’s a 12-month offer or longer at a one-time 3% fee, then, that’s something worth considering.

Read: You’re Debt Free, What’s Next?

Get a personal loan.

There’s an adage that do not pay debt with another debt. I totally agree with the statement, that is, in general. But a personal Loan is an exception at a certain extent. Personal loans are among the underutilized and overlooked products for those who want to get out debt faster.

The important factor to remember when getting a personal loan is the interest rate. If the loan’s has a 5% APR and your credit card rates are higher, which are usually in double-digits, then, personal loans are a good way to eliminate your debts by making less payments on interests.

Having said that, there are other considerations to include in the equation when getting a personal one.

Term of the Loan. Care must be taken in order to ensure that the loan’s term is consistent with your budget and your goals. If the monthly payment is not within your budget, then, the loan may not be your best option.

Use this Personal Loan Calculator For All Situations to find the best loan for you.

By far, this is one of the viable way on how to pay off debt with no money. Of course, no still need to pay what you owe from your family and friends.

Loans from family or friends, at times, come with a really low interest rate or, sometimes, doesn’t come with interest at all. But it also comes with the issues of leniency, trust, and commitment.

If those issues are already taken care of, then, a loan from your loved ones may be a ticket to your quest of eliminating your debt faster. Always make sure that your loan agreement is formalized to avoid strain in relationship.

Read: 7 Great Spring Side Hustles To Make Extra Money

Cash out part of your savings.

Cashing out part of your savings can be one of the best ways to pay off debt.

This is a tricky situation and always think twice before dipping into your savings account. Savings account typically pay less than 1%, at the most, a year and your credit card interest rates hover way above that. Sometimes, it’s foolish to stick your money into your savings when it’s only making a few percentage above zero.

Unless you have better use for your money like investments, it may be wiser to use it towards credit card payments.

Even with investments such as stocks and mutual funds, if you have a credit card with 10% APR, then, you will need more than 10% return/year in investments before federal and states included in the equation to arrive at a net 10% return/year.

For example, if you’re credit card’s APR is 15%, pay it off using savings money. You’ll feel like getting 15% in return with little to no risk on your part. As always, make sure you don’t cash out all your savings and leave those emergency funds intact.

Read: 30+ Money Saving Life Hacks

Renegotiate terms and conditions with your creditors.

If you don’t have much income, renegotiating debt’s terms and conditions with your creditors is one of the doable ways on how to pay off debt fast with low income.

When your savings are already gone, relatives have been asked for assistance, and money from the second job aren’t enough, it’s never bad to renegotiate terms with your creditors. The worse response you can get from creditors is “no at this time”.

Explain to your creditors your situation and ask for payment plans, interest waivers, or something along those lines. Communicate to them that with your current situation, you won’t be able to pay your debt and may resort to bankruptcy instead.

You’ll be surprised what other options these creditors may give you. If taking to your creditors don’t work the first time, communicate again a few weeks later. What do you have to lose except your time and effort?

Borrow against your life insurance.

Got a permanent life insurance with cash value that you can tap into? If your answer is a yes, then, you may consider borrowing against your policy. Typically, the interest charge for loans against your policy is way below personal loan rates and your credit card interest rates.

You really are borrowing your money and the interest you get charged, at times, will be returned to your policy, which is yours. So, the interest goes back to you. Isn’t it a clever way to pay off debt that you have?

Read: How I Paid $40K Of Debt and Saved $70K in 2.5 Years

Make two or more separate payments.

This is one of the steps to pay off debts. Interest is calculated on a daily outstanding balance not when the account is due. It goes to say if you are paying your card the day it’s due, its better if you change when you pay your debt.

There’s a difference in interest calculated when two payments are made on different days versus a one-time payment in a month even when the monthly total payment is the same.

If you can afford to pay the day after the statement is closed, that’s even better than waiting for the due date to come around.

For example, the due date is on the 23rd and the closing date is the 25th. If you regularly pay on the due date, then, you would pay on the 23rd. On the 26th, you will pay again to cover the due for the new billing cycle. After that, your new payment schedule should be the 26th. You don’t have to worry about not paying on the due date because you’ve already paid the amount several weeks ahead of the due date.

Try: Paying Off Debt Calculator

Final thoughts: