Most people these days struggle with debt. Perhaps you have to pay off student loans? Or a mortgage? Or maybe you have a lot of business-related debt? Whether you maxed out your credit card or find yourself under the mountain of business loans, figuring out how to pay off debt can be exhausting. 

To get on the right path and become debt-free as soon as possible, you need to understand your debt first. Every loan, large or small, is both a blessing and a curse. Every strategy for handling debt needs to first balance the good and the bad. 

The loan you take to make an investment, such as in business or property, leaves you with a good kind of debt. Meaning your debt will pay itself off in time, and you will likely profit from it. 

However, if you can’t repay your debts and you owe more than you can pay, that’s bad debt. It can be debilitating. But even in this situation, you can think of debt as a kind of leverage. 

The important question is: how do you know if your debt will be good or bad? Once you figure that out, you can come up with a strategy to pay it all off. If you want to understand your debt and find out about some strategies to get rid of it, read on. 

Watch this video about an entrepreneur’s strategy to pay off debts.

Good Debt

Using a loan to invest in something that will make you more successful means you are dealing with good debt. This debt is good because once it’s paid off, you will be wealthier.

Good debt takes your business or career to the next level. Here are some examples:

  • A business loan from the bank to buy new equipment for your business
  • A loan to hire more employees
  • A mortgage to invest in some property
  • A student loan from the government to improve your skillset

In each case, the person borrowing the money is using it for some type of advancement. The entrepreneur taking business loan plans to generate business revenue by getting new equipment or hiring more staff. The increased revenue and profit will help to pay off the loan. The person investing in the property will make money if he or she is able to sell it for a profit. The student uses the loan to take some classes and gain skills that will add value to the marketplace and increase his or her income.

In short, any loan that helps a person generate more revenue or income is considered good debt.

Bad Debt

Bad debt is the opposite. Finding yourself in bad debt means you’ve borrowed money that you can’t return, or you’re financially worse off afterward. 

The entrepreneur may get a bank loan to buy equipment, but it may be the wrong kind of loan or the wrong kind of equipment that doesn’t ultimately improve your business. A business owner may get a loan to expand their workforce, but if the employees aren’t the right fit for the job, the business is at a loss. The property may lose value, and the student may invest in skills that no one wants. The situations presumed to be beneficial are now examples of bad debt.

Car loans, payday loans, and credit card debt are all examples of bad debt. And any kind of debt for personal consumption or pleasure is bad. These loans don’t generate you money, but they make you poorer.

Almost every millionaire and billionaire in the world uses debt or leverage in some form. Many of them accrued bad debt starting off. If you realize you are under the mountain of bad debt too – do not panic. There is a way to pay most of it off and turn it into good debt quickly. 

If you want to discover strategies that help you get out of bad debt faster, read on. 

1. Income First 

Now that we are clear on what is good and bad debt, we should talk about income. Before you can strategize about paying off your debt, you should have a clear picture of your finances and the income you can generate each month. 

So making the money that you are making right now, how long would it take you to pay off all your debt? Three months or twenty years? When you think in those terms, it is overwhelming. How will you pay off all that money?

For most people, being debt-free without increasing income is impossible, so they look for additional income. Whether you have a job or own a business, making some extra money on the side is always a good idea. 

If you want to make more money, finding a side hustle to do in your spare time is a good idea. This extra income will allow you to get rid of debt faster. For example, if you know how to ski or play golf, you can work as a teacher in the summer and winter and make extra money on the side doing something you enjoy. 

If you could bring in an additional $3000 to $10,000 a month, without changing what you are doing except adding another stream of income, how much faster would you pay off your debt?

This is one of the main reasons why Dan teaches high ticket closing and copywriting. These are high-income skills that anyone can use whenever they want to pick up an extra gig or build a new business. Find a flexible skill like that if you want to build another stream of income and pay off your debts faster. 

2. Lower Your Expenses 

Paying off your debt quickly is all about putting more money towards the loan. This is why critically analyzing your budget is the key step. Are there certain expenses you could cut out? Can you lower your overall spending? 

If you want to stop accumulating debt, it might be good to remove credit card information from online stores and be purposeful when you carry your physical card with you as well. Eliminate temptations to spend money. 

It might be good to allocate a precise amount for your expenses each month and stick to it. For example, keep essential expenses, like housing, to 50% of your income. Allocate 30% for things that you want, and use 20% for savings and paying off your debt. 

It might not seem like cutting down on your expenses and putting 5% towards paying off your debt is much – but it can make all the difference in the long run. 

3. Create a Budget Plan

Before taking any concrete steps, you need to know what your budget looks like. Do you know what your debt balance is overall? What are your costs? 

You could start by listing all your current debts. For example:

  • credit card debt $5267.91
  • student loan $10,874.54
  • car loan $8,684.15
  • second credit card debt $1,356.25

Be very specific. Don’t round off any numbers. Be crystal clear. When you round off numbers, the debt might feel bigger and more overwhelming in your mind. Once you make this list, things might actually not be as bad as you think.

Clarity is power; vagueness is a weakness. Click To Tweet

Now, you can see what you’re dealing with. Can you tackle your list one item at a time? 

To get a better picture of what you can pay off and how to move forward, list all your income and expenses. How much money can you allocate for debt payments? 

It might be a good idea to use your computer for this so that you can regularly revisit and update your budget. Perhaps make an Excel spreadsheet. Many people also use personal finance tools like

4. Decide on and know your debt strategy

Once you have the owed amount on paper in front of you, you’ll also get a clear perspective on your finances. Do you have a steady income? Do you have any savings? Could you work out a timeline for paying off your debt? 

What you need most when paying off debt are motivation and confidence. For this reason, think carefully about what debt you want to tackle first and create a strategy. 

Many people default to tackling their highest debt first. This is by no means a wrong decision, but it may not be the most uplifting one. Continually paying off the highest debt creates a sense of stagnation for some people. 

On the other hand, some decide to get rid of the smallest debt first. This allows you to see progress faster, and it will keep you motivated. However, it will also take you longer to get rid of debt and shake off the burdens of high-interest rates. 

So to choose the right strategy, think about what makes sense for you financially as well as personally. Do you like seeing your debt go down faster? Or are you patient and want a strategy to save more money in the long run? 

The right payoff strategy depends fully on you and your personality. Here are some common strategies to consider: 

Debt Snowball

If you are the person who needs to see results to stay motivated, then the snowball strategy might be the right one for you. In this case, you would focus on paying off your smallest debt first. 

So in this case, you would dedicate most of your funds to the smallest loan while paying minimums on the others. Once you finish with this debt, you would roll the amount you dedicated to it into payments on the next largest loan. 

Using this strategy, you will be able to see progress to stay motivated. However, you should keep in mind that the interest on the other loans will still be compiling so you will end up paying off more in the long term. 

Debt Avalanche 

Are you a patient person? Can you stay motivated in paying off your debt even if you don’t see the balance go down so fast? If you are someone who can focus on the long-run benefits, then this might be the right choice for you. It will allow you to cut down on interest payments and save money while knocking off your heaviest financial burdens first. 

In this case – you pay off the highest interest rate first. After you pay this off, you move onto the debt with the highest rate and so on. The idea is to focus on the debt that presents the heavier burden first.

Debts with higher interest rates eat up more of your money monthly. This is why the avalanche method is also the best when trying to save money in the long run. Wouldn’t it be good to put more money towards your other debts sooner? 

To start off, you could make a list of all your debts. Include all information about each: current balance, minimum monthly payments, interest rates. Sort your debts in order of interest rate – highest to lowest. Budget how much you need to make minimum payments on all of your loans while putting the maximum amount of money towards the most expensive debt. 

However, remember – this strategy is for the more patient people. Your highest-interest debt is also your largest debt, so you may spend much more time paying it off. Think carefully – are you self motivated? Will you be able to stay positive and motivated even if you do not see the results right away? If yes – then this might be the best method for you. 

Debt Consolidation 

Do you have many loans? Are they all different interest rates? If you’re looking for a way to pay off multiple loans at once, then consolidation might be the best way to go. 

Combine multiple old debts into a single one and you might be able to make your payments more manageable. If you combine your loans, you will ideally get a lower interest rate as well. If you want to explore this option further, consider looking into strategies such as balance transfer cards and personal loans. 

If you have an account with a high-interest rate, for example, you can transfer its balance to a card with a lower interest rate and spend less money on interest over time. If you want to explore personal loan options, then you might want to look at your local bank or credit union where you already have an account. 

As you consider different strategies, you can consult services such as This service will help you determine whether consolidation, credit counseling or some other option is the best for you.

Consider Debt Relief

In some situations, debt relief may be your only way to avoid bankruptcy. If a massive debt load makes it difficult to service borrowings, your creditor might consider a lower payment or interest rate to avoid defaulting.

Debt relief can take a number of forms: reducing the outstanding principal amount, lowering the interest rates, or extending the term of the loan, among others. Refinancing a mortgage to a lower interest rate is one straightforward example of debt relief. 

Another thing to consider is a debt freeze or payoff amount. This does wonder for loans that are in judgment or overdue. Let’s say your debt is $1,500 but you have only $1,000 available. In this case, you could call the creditor and ask them to settle for $1,000. Many companies agree to this type of settlement and it might just be the right move for you. Just make sure to get the confirmation of the settlement amount and the payment confirmation. 

Final Thoughts 

Debt can be overwhelming for many people. Carrying the burden of years of pending payments seems debilitating. However, if you think strategically, you can quickly find your way out of this situation. Do not let the numbers overwhelm you. You can choose the strategy, build a timeline, and plan exactly how and when to pay off your debts. 

The key to success is motivation and the right mindset. If you’re not driven by reducing numbers on your outstanding balance, then find another vision to drive you. Perhaps you want to buy a new house? Or a better car? Or afford that dream vacation you’ve been dreaming of? Think about what matters to you in life and incorporate it into your debt paying strategy. 

Whatever strategy you choose, know that perseverance will give results. 

Updated October 22, 2020