How to Pay Down Debt Fast
My first tip about paying off debt sounds obvious, but it needs to be said. Avoid debt whenever possible. It’s easier to avoid debt than to pay it off later. Don’t take on debt just to pay for a program or a new piece of equipment—instead, plan for how you can save up and pay for it in 3–6 months. It takes self-control and strategy, but it’s worth it in the long run.
Sometimes it really cannot be helped. You’ve lost clients and still need to pay employees. You’ve had a project run over the timeframe. You cannot get a draw. Things just did not go the way you forecasted or projected, and you need a line of credit, a small loan, or a credit card to make ends meet. When debt absolutely cannot be avoided, follow these steps ASAP to get debt-free.
How to Get out of Debt Fast
Research for the Best Terms
You can often find some low-to-zero-interest credit cards or loans to tide you over until you get income coming in. Obviously, anything low-or-zero-interest is going to be best for you in terms of the payments, but it also gives you incentive to pay it off before the interest rate increases. Some of us need that pressure in order to prevent procrastination.
Have a Repayment Plan
Come up with a plan to tackle debt as quickly as possible. I recommend having a plan as soon as you take the debt out because then you are working it into your projections and your budget. It feels better, and it usually gets paid back quicker.
Pay It Off with Profit First
There are a couple repayment methods you can use, but my favorite is from Profit First by Mike Michalowicz. Take 1–3% of your profit each month and put that on the debt (in addition to your minimum payment). An example of that is, if you’re doing a line of credit for a project until you get the payment, then make sure you allot that client payment to the loan or credit card as soon as you receive it. If there’s a way to automate that, automate that. But paying down debt has to be in your monthly budget. It has to be automated as much as possible.
Pay It Off with Slush Funds
If you’re not running Profit First, then what you want to do is look at your monthly income and expenses. If you have any slush or wiggle room in your operating expenses, that should go all the way to your debt payment.
Create Room in Your Budget
There are some times when it feels impossible to pay down debt. After all, the reason you took on the debt was because your money was so tight. If that is the case, you need to look at how to increase your revenue or make a huge cut to your operating expenses in order to pay off the debt.
Get Expert Help
This crunch right here—where you take on debt to stay afloat and struggle to repay it— that is when you need a voice of reason, a sounding board, a CFO. You need the ability to bounce ideas off somebody else and come up with a debt-management strategy. Otherwise, you’re going to start snowballing your debt the opposite way that experts recommend. You're going to end up taking out more loans and credit cards because you're never actually tackling the debt.
If you have any questions about debt repayment or need help creating your debt-payment strategy, reach out! It’s one of our strengths here at AFS.