Want to get out of debt fast?

Let’s learn how to manage debt effectively!

Debt management is getting your debt under control through financial planning and budgeting. The goal of a debt management is to use sound strategies to lower your current debt and move toward being debt free.

Tackle the debt monster by incomebuddies.com

What is Debt?

Debt is an amount of money owned by one person to another individual or organization, for which the person is legally responsible to pay back the money including any interest incurred for the money owned.

Personal debt is usually taken by a person to make a purchase that they could normally could not afford under normal circumstances.

Debt is also called future money, loan or credit statement.

There are different types of debt,

  • Good debt which are debt that can help you build wealth, and are good for you financially.
  • Bad debt which are debt that destroy your wealth, and are bad for you financially.

If you want to know more about debt, you can check out the difference between good debt and bad debt after this.

For now, let’s learn how to get out of debt fast!

how to get out of debt fast!

Getting out of debt fast is possible for anyone. Simply follow these steps listed below and you are on your way to become debt free!

Katie, a friend of mine was massively in debt ($120,000) due to school loans and credit cards, but following these few steps, it got her out of debt in just 4 years.

Here are the 5 steps guide to get out of debt, fast, easy and simple.

Step 1. Know Your Debts

You need to know where your debts are coming from before you can think of a way to reduce your debts. Identifying your debts is the most important of all in planning how to get out of debt.

You might be afraid of how much debt you have right now, but to ignore the problem will never make it go away.

The interest rate of the debt you own will keep compounding and that is not something you want if you want to get out of debt fast!

When Katie is in her early 20s, her debt was was steadily mounting but was too scared to tally up how much debt she was in. She only pay the minimum payment and forget about it until the next month where her bills arrive in her mail box. This have lead her small debt roll up to become a huge sum of $120,000 (including school loans etc.) in just over 6 years.

Calculated your total debt by first identifying your list of debts and add up the numbers.

  1. Credit Cards
  2. School Loan
  3. Car Loan
  4. Travel Loan
  5. Personnel Loan

Although total amount of debts is important, the amount of debt in compare with your total annual income is even more essential when doing a accurate comparison.

In order to get an accurate comparison we will calculate the debt to income ratio. As you may realized we have leave out the mortgage loans as sometimes this might consider a good debt in certain situations.

What is Debt To Income Ratio

A debt-to-income ratio (DTI) is basically a comparison between your total debt to your total annual earn income. This ratio is used mainly by the banks when you are applying for a mortgage loan to determine the risk and how much can they loan you.

DTI ratio is a simple and efficient tool for you to know how much debt are you in right now.

Don’t worry if it sounds foreign, DTI is actually very easy to calculate.

Debt to income ratio formula

Total Debt/ Total Annual Income = Debt to Income Ratio

You can calculate your debt-to-income ratio by adding up all your monthly debt payments and divide them by your net monthly income.

Debt to income ratio calculation example
  • Example 1: You earn $50,000 a year and have $25,000 in debt. Your Debt Ratio = 0.5.
  • Example 2: You earn $100,000 a year and have $25,000 in debt. Your Debt Ratio = 0.25.


Check out our simple guide in creating your Personalized Budget using the 50/30/20 rules. A simple step-by-step guide to guide you on your financial journey to a stress free life.

Step 2. Changing Your Spending Habits

Changing your money spending habits is important to get you out of debt, and keep you out of debt in life. Because bad spending habit is usually the reason why most people get themselves into debt.

Change your bad spending habits that makes you in debt is probably the most important step to get yourself out of debt

Why changing your bad spending habits is important?

Good money habits put you in control to make thoughtful decisions. While not having good money habits will leave you vulnerable to make financial decisions based on emotions and impulse.

If you don’t change your spending habits even when you win a lottery, you will soon be in debt again.

According to MSNBC winning the lottery isn’t always a ticket to happiness and to some other sources, approx. 70% of all lottery winner declared bankrupt in just a few years after they won their millions.

The key difference between people who keep their money and those who lose it is their spending habits.

People got into debt for many different reason.

  • School Fees
  • Job loss
  • Medical bills
  • Credit cards
  • Etc.

Don’t dwell on your past, you just have to stop doing stuff that get you into debt in the future starting today.

What you should not do if you want to get out of debt?

If you took $60,000 in student loans for a college degree, don’t borrower another $40,000 for a PhD.

  • Do your further studies after you pay your loan or when you have enough to finance it without the help of loan.
  • Student loan have an interest rate of over 5% to 10% which can compound to a hefty sum if you let it roll.

If you use your credit card like no tomorrow and buy branded bags so that you can show off to other. Stop!

  • Looking rich and being rich is different, all those credit card debts are the worst debts of all and can easily be avoided.
  • Credit card debts are like loan sharks with the license to loan. These debt have an interest rate of over 15% to 30%.

Getting a call from a friendly banker that ask if you are interested in getting a personal loan for your trip to Hawaii with your family? Hang that call, it is a debt red flag!

  • Getting a personal loan now just to enjoy now is a disfavor to your future and your family’s future. Because when you are using a future money, the future always comes to haunt you.
  • Personal loan are the scary stuff you must in all case avoid. Some personal loan have an ‘attractive’ interest rate of 3% but it is compounded per month (3% * 12 month = approx. 40% per annual).

Loans or credit card debts for consumption goods are the worst of all.

Warren Buffett, the world’s 3rd riches and most successful investor Billionaire make his Billions by compounding his investment returns by an average of approx. 28% for the past 50 years.

Imagine if you compound your debts with such high interest, instead of being a billionaire, you will be billion dollar in debt. Of course it won’t happen, because the banks will force you to declared bankrupt before then.

What you should do to get out of debt?

Drop expensive spending habits

  • Stop Using Credit Cards the one card that makes you go deeper and deeper into debt each month.
  • This can be really hard for some people, especially when you find yourself using them to cover some of your daily expense. If you find yourself in this situation, find out what are the essentials and non-essential items in your daily expenses and make action.

Identify your needs and wants

  • Needs are items which is required for survival such as food and shelter. Wants are items that are good to have but won’t kill you if you are living without it. Such as the latest iPhone that is out in the market.
  • Then focus on your needs and not wants.

Pay off your Debt

  • Paying off your debt is the only way to prevent the interest from rolling and the debt from mounting so it is some of the most important thing you should do and we will show you how.


If you want to change your life and be in control. Self-development is one of the best investment on yourself and reading is the cheapest and easiest way to do so. Check out some of the Best Books you should read to help develop yourself into a even better self.

Step 3. Paying Off Debt Fast

There are two popular ways to pay off debt fast.

  1. Debt stacking.
  2. Debt snowball.

Each method have their own pros and cons, so before deciding which methods should you use to tackle your debt, it is always good to understand what each strategy is like.

Simply choose a strategy that suits you best.

And to illustrate on how you can pay off your debt, we have create an hypothetical situation with John as the main character.

John is in debt for the following:

  • Credit Card, $5,000 – Highest interest rate, 15 Percent
  • Car Loan, $3,000 – Second highest interest rate, 10 Percent
  • Student Loan, $1,000 – Lowest interest rate, 5 Percent

Debt Stacking

Debt stacking is also known as debt avalanche. With debt stacking you will rank your list of debt according to the interest rate. Then you will pay off the loan with the highest interest rate until the debt is repaid, regardless of how much you own.

If you used the debt stacking method, you would pay the debt in the following order:

  1. Credit Card, $5,000 – Highest interest rate, 15 Percent
  2. Car Loan, $3,000 – Second highest interest rate, 10 Percent
  3. Student Loan, $1,000 – Lowest interest rate, 5 Percent

With the debt stacking method, you will prioritize your Credit Card which have has the highest interest rate.

How does the debt stacking method work?

Debt stacking method allow you to achieve paying off your loan with the highest interest rate so the amount of debt you own will not compound so quickly and allow you to reach your goal to be debt free quicker.

  1. Make the minimum payment on all the loans you have.
  2. Pay every penny toward the debt with the highest interest rate, in regardless of the amount you own for others.

Is there downside of debt stacking method?

With the debt stacking, it may take a long time for you to repay off the high interest debt if it is a huge sum.

Some people might get disheartened and give up halfway as they may feel frustrated after investing so much time and energy toward paying down a loan without the feeling of a mental victory.

Debt SnowBall

In debt snowball method you should pay off the loan with the lowest balance, regardless of interest rate.

If you used the snowball method, you would pay the debt in the following order:

  1. Student Loan, $1,000 – Lowest interest rate, 5 Percent
  2. Car Loan, $3,000 – Second highest interest rate, 10 Percent
  3. Credit Card, $5,000 – Highest interest rate, 15 Percent

With the debt snowball method, you will prioritize your Student loan which you own the least, and easiest to repay.

How the debt snowball really works?

Debt snowball method tells you to pay off debt in order of smallest to largest regardless of interest rate. When the smallest debt is repaid in full, you move on to repay the next smallest debt, and finally becoming debt-free.

  1. Take the minimum payment on all the debts you have.
  2. Put every penny toward the debt with the smallest balance, in regardless of the interest rate.

Debt snowball method helps you to gain momentum as you knock out each debt.

Why debt snowball works?

Debt snowball method works because this allow you to achieve paying off your debt with the smallest balance, which gives you a sense of victory and to cross of one debt off your list.

This psychological feeling of victory helps to motivate you to continue saving money and repaying your debts.

Debt snowball method is exceptionally suited for those who just begin to learn how to pay of debt.

Debt snowball or debt stacking

The main difference between debt snowball and debt stacking method is how you list your priorities in paying off your debt. With debt snowball method, you list down your debt from the smallest to the biggest. With debt stacking method, you list down your debt from the highest interest rate to the lowest.

Debt Snowball Method

Financially, you might have to pay more on the interests with debt snowball method in compared with debt stacking method.

Advantage of debt snowball is it’s ability to motivates you to press on. Small victories allows you to focus more on your goal, and will soon allow you to get out of debt and be debt free. 

Debt Stacking Method

Financially, you will pay less on the interests with debt stacking method in compared with debt snowball method.

Disadvantage of debt stacking method is it’s inability to provide motivation to make you press on.

Without small victories that allows you to focus more on your goal, some may not succeed and give up in getting out of debt and be debt free.

But there is a way to increase the success of this method exponentially.


Read ‘The Total Money Makeover’ by Dave Ramsey. Dave’s book is a New York Times Best Seller which teaches on money management.

Step 4. Make More Money to Pay Off Debt

Cutting your expenses and learning the different methods to pay of debt are great ways to get out of debt. But if you want to get out of debt fast, you will want to learn new ways to make more money.

Best way to pay off a lot of debt

The best way to pay off a lot of debt is to learn new ways to make more money.

Making more money allows you to have more free cash flow to allocate your money in paying off your debt.

If you don’t earn more you are limited to the amount you have after each month to repay the debt.

Perhaps skipping a meal or two may bring you an extra penny but it will never be enough to pay off a massive amount debt.

Here are a few ways you can earn more money to pay off your debt.

1. Garage Sale

Do you have stuff that lie around like for decades and is basically using up space in your living room? How about that old guitar that you will never touch in the future?

Sell all your stuff which are basically useless and collecting dust. Nowadays we have sites such as eBay or Craigslist which makes this much easier to do.

2. Ask for a Raise

Well, before you change your job because the pay barely even pay your monthly bills. Try ask for a raise from your boss whom you love so much.

Of course this will come with a few prerequisite such as being an employee which provides value to the company. Someone whom provides value will be valued.

You will never know, a huge raise in your monthly paycheck might just be around the corner.

3. Change a Job

If you are providing a lot of value to the company’s bottom-line and you are not getting a pay raise for a long time.

Maybe it is time for you to explore the world outside of your office.

Job hopping is not what we are encouraging, but we humans have to be practical at times when needed.

4. Side-Hustle

The holy grail of getting success in life. Similar to getting a second job but much much better. It is one which you will enjoy while earning money.

There are different kinds of side hustle such as:

  • Investing
  • Creating a Business
  • Creating Passive Income

There are literally endless ways to earn extra money, the world is your limit.

You don’t work harder, you work smarter.

When you have more than one sources of income you are on your way to be debt-free and financially free.


Want to know ways you can easily earn passive income that you can start today? You can check out our article on some of the easiest way to earn passive income, and if it benefits you, remember to let us know!

Step 5. Take Action

Congratulations on reaching the last and most important step!

Know Your Debts
Change Your Spending Habits
Paying Off Your Debt
Earn More
Take Action

You should give a pat on your back, because only those who are determine enough to get out of debt will be reading this.

You are Amazing!

Action plan to get out of debt.

  1. Within 24 hours I want you to understand your debt and and find out where you money are going to and get your Debt to Income Ratio.
  2. For the next 3 days, write down what are the bad spending habits you should change.
  3. List down what are the bad spending habits you are doing and how these habits have caused you to mounting up your debt.
  4. Identify the top 3 bad spending habits and remove them from your lifestyle by the end of a week.
  5. By the end of a week, start paying down your debt one step at a time with either ‘Debt Snowball’ or ‘Debt Stacking’ Method.
  6. For the next 30 days, learn new ways to make more money and use your creative juices and start earning some extra cash!
  7. Lastly, sustain and continue paying off debt till you are debt free!

Some might think ‘Taking Action’ is not a ‘Step’, but ‘Taking Acton’ is the most important step you can take.


You can read 100’s of articles about getting out of debt, but without actions it means nothing, so take actions now and be in control of your life.


Want to learn about being successful in life?

Check out our articles on some of the key traits to success of billionaires for some of the most insightful trait of the billionaire that you can learn from. There you will also learn the 3 simple steps to get things done and be successful.

Why is it so hard to get out of debt

Getting out of debt is hard because it means to make lifestyle changes. Most people who are indebt overextended themselves by spending future money and ramp up their high-interest debt.

Reasons why it is hard to get out of debt.

  • You need to change your current lifestyle.
  • You need to sacrifice now for a better future.
  • The interest rate to pay down the debt is too high.
  • Other people are spending and you want too as well.
  • Other people discourage you to repay your debt.
  • Unexpected expenses arises.
  • Paying down debt takes a long time.
  • Took up bad habits that leave to debt.

Of all these reasons, the worst way to get into a debt crisis is by taking up bad habits such as gambling.

Gambling is the downfall of many who are addicted and this bad habit have cause major distress to themselves and their loved ones.

what is it like to be debt-free?

Being debt-free, you’ll will experience freedom and stress free in your financial life. You will learn the life skill of making money and keep it. You will be able to build a life saving and accomplish financial goals faster and easier.

Learning how to get out of debt is a life skill that will benefit you for years to come.

  1. Know Your Debts
  2. Change Your Spending Habits
  3. Paying Off Your Debt
  4. Earn More
  5. Take Action

Being debt-free for life means to ridding yourself of bad debt, and these are some things you’ll need to keep in mind.

  1. You must confront your current and future debt.
  2. You have to be determine to change the behaviors that got you into debt.
  3. You need to resist from getting into debt in the future.

Question is:

Are you up to the challenge to become debt free and keep being debt free!

Read Also: Books that will Empower You For the Years to Come

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Disclaimer: I am not your financial adviser or lawyer, information found in our website are just my opinions. You should always ask your financial adviser or lawyer for any financial or law related advice.

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