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How to get out of debt quickly

Reading time: 13 minutes

The longer your debt lingers, the more expensive it gets overall. That’s because credit typically costs us in fees and interest – the price of borrowing money.

So staying in debt is not sustainable over time (it keeps you from getting ahead). You’ll want to find the quickest way to get out… and stay out.

If you’re only just thinking about taking on debt, here’s our guide on what to know first. But if you’re already carrying debt – especially the high-interest kind – read on for how to get rid of it as quickly as possible.

In this guide

Is your debt weighing you down?

Strategies to get rid of debt fast

Carrying high-interest debts?

How much can you funnel towards repaying your debt?

5 steps to pay off debt quickly and be debt free

It’s okay to get help to become debt free

How fast can you shed your debt?

Debt free FAQs

How to get out of debt quickly

The longer your debt lingers, the more expensive it gets overall. That’s because credit typically costs us in fees and interest – the price of borrowing money.

So staying in debt is not sustainable over time (it keeps you from getting ahead). You’ll want to find the quickest way to get out… and stay out.

Is your debt weighing you down?

Debt’s so easy to get into. We might even start to depend on it for everyday expenses, or to get out of a jam when something unexpected happens.

There’s unfortunately a fair bit of stigma – and guilt – that comes along with debt. It silences us, keeps us from doing things we love, and can end up being a real burden over time.

And it’s not just a drag financially, but emotionally and even physically, too. (Some of us even experience lower back pain because of it!) It can leave you feeling like you’ll never get out from under your loans.

The good news is that you certainly can – by hacking the way you use debt in your life. With some key changes you can avoid falling into the same borrowing habits and get on top of your money.

Wouldn’t it be great to feel debt free? Less stress for sure!

Strategies to get rid of debt fast

The first step to getting rid of debt is actually not to pay it off. It’s to start saving.

(Of course, keep making minimum payments though!)

As we point out in our 6 Steps, it’s best to begin by socking away $1000 in a starter emergency fund. Why? Many times we may struggle to pay off debt, only to have something unexpected happen and end up borrowing even more. Having that $1000 at the ready keeps us from sliding backwards into more debt.

But next up is to start tackling it. Funnel any extra money you can towards repaying your debt. The more you do, the faster you’ll be rid of it. There’s more on how to maximise that below.

And if you are carrying multiple debts – and that includes Buy Now, Pay Later (BNPL) like Afterpay or Zip – there are three key strategies to pick from: the avalanche, the snowball or consolidation.

When you have multiple debts, instead of trying to repay them all at once, it’s best to make the minimum repayment on all but one. Then you take as much extra money as you can find and use it to repay that one debt as fast as possible. Think of it like a fire extinguisher, putting out one debt after another.

The debt avalanche

With a ‘debt avalanche’, you pay off the debt with the highest-interest rate first. When you finish that, you move on to the next most-expensive one, then the one after that. Rinse and repeat.

The avalanche is the quickest way out of debt, mathematically speaking, since you are getting rid of the debt that is most expensive. When you do, you have more money to funnel towards your other debts.

But if you are running some high balances, it can take grit and determination to see it through. If you find paying off large loans daunting, consider ‘snowballing’ your debts instead.

The debt snowball

With a ‘debt snowball’, you instead pay off the debt with the smallest balance first. Once that’s out of the way, you take your extra money and aim it at the next-smallest balance. Again, rinse and repeat.

Knocking off the tiny ones first gives you motivation and momentum. Quick wins are satisfying!

Now snowballing your debt isn’t always the quickest or cheapest way out, but you may find it easier to build up momentum and make it to the finish line being debt free.

Or you may want to start with a snowball to get rolling and then start your avalanche later on. Whichever works for you!

Debt consolidation

Finally there’s debt consolidation, which means wrapping all your debts together and paying them off with one lower interest rate. You take out a personal loan and transfer all your balances. Here’s more about debt consolidation.

Consolidating can save you heaps, but unfortunately it can land you in even more debt! For example, if you are clearing out a credit card or BNPL by transferring those balances, you’ll wind up with available credit to use. Will you be able to resist loading those up again?

It might mean you need to cancel those BNPL accounts and cards. The goal is to become debt free, so you really need to leave your borrowing days behind and hack the way you handle money.

Carrying high-interest debts?

Which one you focus on to repay first really matters to how quickly you shed your debt. Pick your strategy to being debt free today.

How much can you funnel towards repaying your debt?

So the more money you can put towards your repayments, the faster you can put the debt fires out. But how do you find as much extra money as possible?

You can use a budget – which is essentially a plan for your spending – to find as much surplus money as you can. By listing all your incomings and outgoings, you can then make a plan and free up money so you can use it for your goals.

You may need to cut here and there temporarily, but it’s so worth it. After all, your goal is to be debt free. Here’s our budgeting tool, where you can work out what you can trim.

5 steps to pay off debt quickly and be debt free

Find as much extra money as you can for repayments.

Use our budgeting tool to crunch your numbers and find as much extra money as you can. Even a little bit will help you get to your goal of being debt free that much quicker.

List all the debts you have, including their interest rate and balance.

Attempting to pay them all off at once is daunting. You’ll want to get a clear picture of all your debts, including how much they’re costing you and how much they’ve grown. This way you can prioritise. Use our debt calculator to compile them all.

Make minimum repayments as you aim your extra money towards one at a time.

With a number of debts, you’ll need to choose your strategy for which one to focus on. Start big with an avalanche (the highest-interest rate) or start small with a snowball (the smallest balance), and then aim all your extra money at that one until you’re rid of it.

Rinse and repeat with each debt you have.

After you’re done with the first, take all the money you had going towards it and move on to the next cab off the rank. One after the other, you will have more and more money going towards debt repayment, accelerating towards your goal.

Close out your credit to stay debt free going forward.

All of this only really works if you fundamentally change the way you handle your money. Every time we use credit it costs us, keeping us from getting ahead financially. If your goal is to stay debt free going forward, you may need to close out the credit accounts you have.

It’s okay to get help to become debt free

Debt can burn out of control, and it can become more than we can handle on our own. It’s more than okay to get help!

It’s important to know that there is a lot of help available. There are brilliant teams, programmes and products at the ready. You’ll find many of them here.

You’re not alone in this: reach out to the team at MoneyTalks, even anonymously, on 0800 345 123, help@moneytalks.co.nz or text 4029. You’ll be glad you got in touch – and may discover that there are even faster ways to get you debt free.

How fast can you shed your debt?

It’s time to find out. Our debt calculator lets you plug in all your debts in one place and chart the quickest way to pay them off.

Try the debt calculator

How do I pay off debt if I live payday to payday?

What can help most is a budget, a buffer and a strategy. A budget is really just a plan for your spending – it’s a big help when you’re directing your money towards a goal like being debt free. But even before you tackle your debt, it’s a great strategy to save an emergency fund of $1000 while you keep making minimum payments on your debts. That way you’re ready for the unexpected. Without a safety net, if something happens, you’d just have to run up your debt all over again. Finally, you can consider ways to tackle debt, or debt consolidation: find out which will work best for you. 

Do I pay down debt first or get an emergency fund going?

Saving for an emergency fund of $1000 is a great place to start, and then tackle all high-interest debt you’re carrying. When you pay down debt first, if an emergency pops up, you could end up borrowing more. With an emergency fund, however, you can handle those unexpected events like a car repair or trip to the vet, without sliding further into debt. The goal is to get out of debt for good, so here’s more on starting your safety net. 

I’m in debt and I don’t know where to start. Which debt should I pay off first?

Aiming to be debt free? It’s the high-interest debt that hurts most: payday loans, credit cards, store cards, car loans. That’s what we’re after first. When you have a number of loans on the go, there are a couple of strategies that help to take them down. The first is a ‘debt avalanche’, where you list all your debts and target the highest-interest loan first (the most expensive). The second is a ‘debt snowball’, where you start with the smallest loan. Find out which could work for you.

And remember you’re not alone in this: help is at the ready. Reach out to the team at MoneyTalks, even anonymously, on 0800 345 123, help@moneytalks.co.nz or text 4029. 

How does debt affect my credit score?

Managing our borrowing well can increase our score. Credit reports record any missed payments (defaults) and how long they are overdue. They also can show how much we’ve borrowed and whether we’ve made regular repayments or not. Our credit history also shows how often we’ve applied for loans, and too many enquiries can push our scores down. You can get your credit report for free by requesting it – here’s where to find out more. 

Is it okay to pay just minimum repayments on a loan?

Sometimes you may have to, but here’s the thing: paying the minimum means you’ll pay the maximum in interest! (Unless you default and miss repayments entirely, in which case it will get even more expensive.) So as a rule of thumb, you always want to pay more than just the minimum. For every dollar you pay above that, you are cutting down your interest costs and reshaping the debt in your favour. Aim to pay more than the minimum to get on top of your debt – you’ll ditch it that much quicker!

Is debt consolidation a good idea?

Wrapping all our debts together and paying them off at once – ideally at a lower interest rate so we get out faster – can be helpful. But the key is to leave borrowing behind! Many times we’ve seen that consolidating debt into a single loan, while it seems like a good idea financially, in practice leads to more debt. Aim to close out your old credit cards and other ways of borrowing so you don’t rack them up again. Here’s how to make debt consolidation work for you. 

What happens if I can’t repay a loan?

If you're having some financial troubles and think you're going to find it hard to make the next repayment on a loan, go and talk to the lender straight away. You have the right to ask for new arrangements to repay and this is the best way to avoid extra costs.

If you fall behind on repaying your loan, you can be charged penalties in the form of fees or a higher interest rate. Your late payments will be recorded against your credit score (which affects your ability to borrow more someday).

If you can’t repay your loan at all, and your lender gives up trying to get you to repay, they can sell your loan to a debt collector. Then they have a go at harassing you into repaying. We wouldn’t wish it on anyone, but if you do get caught out, it helps to have someone in your corner.

The team at MoneyTalks is worth reaching out to for support. 

How do debt collectors work?

If you are unable to repay a loan, debt collectors buy your debt from the original lender for cents in the dollar, and then have a go at harassing you into repaying. This can include phone calls at all hours and knocking on your door. We wouldn’t wish it on anyone, but if you do get caught out with a debt collector, it helps to have someone in your corner. The team at MoneyTalks is worth reaching out to for the support you need. 

Can debt affect my mortgage application?

One of the most important things that mortgage lenders look at is how much income you have free in order to make loan repayments. With too much debt, a lot of your income is already committed to other loans, and there’s only so much to go around. Even if you’re not using all of your credit limit, it’s important to know that the lender will assess you as if you are. They will also look at your credit history, and how well you’ve repaid other loans. In the end the lender may decide to lend you less, or nothing at all. Here’s more on what to expect to borrow when you’re buying a home. 

6 steps to get sorted

Don’t know where to start? Our 6 steps will help you to take control of your money.

Head to the 6 steps

6 steps to get your money Sorted

Start your emergency fund

Get your KiwiSaver on track

Tackle your debt

Cover your people, money, stuff

Work out your retirement number

Set your goals, then reach them!

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How to get out of debt quickly

Reading time: 13 minutes

In this guide

How to get out of debt quickly

Is your debt weighing you down?

Strategies to get rid of debt fast

The debt avalanche

The debt snowball

Debt consolidation

Carrying high-interest debts?

How much can you funnel towards repaying your debt?

5 steps to pay off debt quickly and be debt free

Find as much extra money as you can for repayments.

List all the debts you have, including their interest rate and balance.

Make minimum repayments as you aim your extra money towards one at a time.

Rinse and repeat with each debt you have.

Close out your credit to stay debt free going forward.

It’s okay to get help to become debt free

How fast can you shed your debt?

Debt free FAQs

How do I pay off debt if I live payday to payday?

Do I pay down debt first or get an emergency fund going?

I’m in debt and I don’t know where to start. Which debt should I pay off first?

How does debt affect my credit score?

Is it okay to pay just minimum repayments on a loan?

Is debt consolidation a good idea?

What happens if I can’t repay a loan?

How do debt collectors work?

Can debt affect my mortgage application?

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