The FASTEST Way To Pay Off Debt

What's up guys, it's Graham here!

So we're gonna be starting this video off with some very scary statistics. I hope you're sitting down; you've been warned because this is getting out of hand. The average American is now up to thirty-eight thousand dollars in personal debt. The average revolving credit card balance is over six thousand seven hundred dollars, and from the nearly 70% of people who took out student loans, they graduate with an average debt balance of twenty-nine thousand eight hundred dollars. That is just insane.

So with that said, if you ever find yourself in a situation like this or ever have any personal debt you want paid off as quickly and painlessly as possible, here is exactly how you do that.

When it comes to paying off debt, let me be very clear: I am NOT referring to your thirty-year, three percent mortgage on a rental property or like the two percent auto loan that you have when your investments are going and making you ten percent instead. I'm referring to your personal debts that don't have any other purpose other than to make your life a living hell and to cost you way more money than you need to spend.

I'm talking about any sort of unnecessary credit-card debt or any high-interest auto loan or even a personal loan or even student loan debt. Basically, any debt that you have that doesn't make you more money should be paid off as soon as you possibly can.

This is exactly how you can go and do that in seven very easy steps. The first step to getting out of debt is to first understand exactly what sort of debt you have. I have a sneaking suspicion that most people who find themselves bogged down by debt never really understand exactly how much debt they're in or how much that debt is costing them in interest.

So it's really important to look through your finances to be able to confront this head-on. First, go ahead and make a list of all of the debt that you owe. Then also include the balance that you owe on that debt and also the interest rate that that debt is costing you.

Now, this is not something to ignore; it's not something to be afraid of looking at; it's nothing to be ashamed of. It's just really important to understand that wherever you are right now, it's going to be your starting point, and everything else moving forward is just going to get better with time.

Like for real, if you just think about it, if you start doing this today, that means today is the absolute worst it's going to get, and every single day moving forward is going to be slowly improving and whittling away at that balance. So just go ahead and do this because without doing this, it's going to be a lot like navigating a maze blindfolded.

Secondly, once you've determined exactly how much money you owe and how much that money is costing you in interest, it's important to then start tracking all of your spending over the next thirty days. You need to figure out down to the penny exactly how much money is coming into your account and then exactly how much money is leaving your account.

Most people have no idea where their money goes every month or how much they spend without even thinking about it. Like it could be that Chipotle steak bowl you bought the other day or the five-dollar latte that you bought this morning or going out to lunch with your coworkers for fifteen dollars.

Now the thing is, in the moment, you don't really think of these charges as that big of a deal. I mean, let's be real: like ten-dollar charges here and there; it's not going to make that big of a difference in your life. But these charges add up to a significant amount of money when they happen often, and then you take a step back and you realize, like, wait a second. Oh damn, I've been overspending on coffee because I could have just been making Graham's 90-cent iced coffee recipe that he posted over on the second channel, the Graham Steffen Show, if you haven't checked that out already.

So by tracking your spending, I think it's going to be a very eye-opening experience for you to be able to see the cumulative effects of you spending your money and seeing exactly where it goes without you being consciously aware of it. Now, when it comes to going and tracking your spending, I first recommend using mint.com. This is something I have used since 2012, and I absolutely love it.

I literally have my budgets broken down each and every month over the last seven years, and from doing this, I could better optimize my spending or figure out if I'm wasting money on stupid stuff. The second resource that I have used is called personalcapital.com, and this one is very similar to mint except it's probably a little bit more comprehensive.

So for beginners, I would probably recommend mint.com, but I think personalcapital.com is probably slightly better. Third, you can also use the software called You Need A Budget. Now this one is by far the most comprehensive and it requires a little bit of work on your end, but if you're very serious about tracking your spending, cutting back, and paying off debt, this one is by far the best option.

They do have a free trial when it comes to this, but otherwise, it's going to be seven dollars a month. Now, there are a few things that I ever say you should spend money on, but I really believe if you are extremely serious about saving money and tracking your expenses, I would recommend it.

This is not sponsored by them; I'm not affiliated with them, they have no idea about any of this. I'm just recommending it because if you really want to be disciplined with this, I do think it's actually worth the cost. Anyway, the whole point of this is really just to be able to track your spending, to figure out exactly where your money is going, and chances are from that you could better optimize your spending and then use that money instead towards paying down the debt.

The third step, after you've done that and tracked all of your spending, you're going to make a list. The first one is your need-to-spend list; your second is going to be your want-to-spend list. The need-to-spend list is going to be something like your bare minimum food budget and the bare minimum housing payment, or your insurance payment, or anything else that is literally essential to you actually living.

This is all just about establishing a baseline to figure out exactly how much money you need every single month just to survive. Then, of course, your other expense column is going to be your want-to-spend; like this could be going out to dinner with friends at TGI Fridays, or going and spending money on an overpriced cup of morning coffee, or going and seeing an overpriced movie, or going and spending money on a shirt from H&M.

This is a brand-new shirt I just got from H&M. Like this column should really be anything you want to do but it won't totally destroy your life if you don't do it. Now, once you've done this part, this is going to be very exciting. I'm excited because this is going to be the start of your new budget.

You're gonna turn that need-to-spend list into your entire financial bible of saving money, and then from that, you're gonna use that money to then pay off the debt. And with that, we're now going to move on to step four, and this is the hard part, but we're gonna have to do it. You're gonna have to go through the want-to-spend list and cut out pretty much everything you possibly can that you don't need to spend money on.

I know it sounds extreme, but if you're in debt, you need to get serious about cutting back on the luxuries until it's paid off. Like you don't need to go to TGI Fridays for dinner with all of your friends. I mean, you could still go, but you don't actually have to order anything for the sake of saving money. Or you could do what I do, which is basically just wait until everyone's finished with their meal, and then you could eat what they're not taking home for basically free.

So you get a free meal from everybody without having to pay for it. There you go! Another one is that you don't need to go to Starbucks to buy a five-dollar Frappuccino when you could just go and make coffee at home for twenty cents.

No, usually you can find a way to cut down significantly on your want-to-spend list by either just cutting it out altogether or just finding a cheaper alternative for the sake of saving money. Like for example, if you're going and spending forty dollars a week for drinks at the bar, don't do that. Just go to the grocery store, spend fifteen dollars on an entire bottle of whatever you want, and instead just go and pregame. Then when you get to the bar, just order a cup of water for free, and there you go.

Just in a few seconds right there, I saved you twenty-five dollars in drinks. I also recommend that when you're doing this, to consider selling anything that you don't use or is costing you a ridiculous amount of money. Like maybe you have a second or a third car payment on something that you don't really need, so you could just go and sell that for the sake of saving money, or cut back to something maybe a little bit cheaper.

Or maybe have a payment plan on something that you're just not getting a lot of use out of, so it's worth it just to cut your losses rather than throw more good money after bad. This step is really just about reducing, reducing, reducing, and smashing the like button if you haven't done that already. Because really this entire thing is just cutting it down to the bare minimum spending and then saving all of that money and using it towards paying down the debt.

But now speaking of savings, we now have step number five, and that could be depending on your debt and the interest rate you have, it might be worth it to look into debt consolidation to lower your interest rate and save the money.

So here's how debt consolidation works. Let's just say you have four credit cards and a personal loan, and between all of that, you have thirty-five thousand dollars worth of debt and a twenty-five percent average interest rate. Well, instead of paying five different loans at five different interest rates, you can consolidate that into one singular loan that you have to pay into. That could potentially be a lower interest rate than what you're paying between all of them, and now that's only one loan you need to pay off at a potentially lower interest rate, which again saves you money.

Now, in addition to if you find yourself in a lot of credit card debt and can't consolidate the loan, it might be worth it to do a balance transfer to a zero-interest credit card to then save some money on interest. Now usually, there will be a three percent balance transfer fee that you pay on the money you move over to the second card, but usually, that is way cheaper than paying like a twenty-seven percent interest rate on another credit card.

Getting a personal loan also works in a very similar way. Usually, personal loans are at a much lower interest rate than credit cards, so going and getting a personal loan to then pay off all of your credit card balances could end up saving you some money. Again, just be responsible with all of this. Don't go and get a personal loan and then just buy like a Ford Mustang GT instead of going and paying off your debts. Like don't do anything stupid with it. If you're going and using it to pay off debt, and now you save some money, by all means.

But if you're gonna be irresponsible about it, then just don't do it; just skip this part. The point is with this is by lowering your interest rate, it saves you more money, which means you have more money left over to then pay off the debt a little bit faster.

So now that brings us to step six in terms of actually paying off your debt. You have two strategies that you could use to go about doing this. The first method is known as the snowball method, as popularized by the one and only Dave Ramsey. This method suggests that you pay off your smallest balances first, then slowly work your way up to the largest balance until that's paid off.

Now, Dave Ramsey suggests that there's a lot of psychological benefits to paying off the smallest balances first, and by seeing your debts paid off sooner, it just gives you the mental boost to stick with it long term. Also, by paying off the smaller balances first, it should free up some extra cash flow that you could then use to pay off the larger balances since you no longer have the monthly payment.

I would certainly see the validity in this argument, and I have a feeling that for most people, this is probably the best route to take from a psychological standpoint. However, this method usually ends up mathematically costing you more money compared with the second method, and this is known as the avalanche method.

Instead of arranging your debts by total balance, you arrange them from the highest interest rate first to the lowest interest rate last. This ensures that you're putting your money towards its best use, which will cost you the least amount of in the long term if you just stick with it. Now, the downside here is that you're not going to get the psychological boost of necessarily paying off the smaller amounts first, but mathematically, this should end up saving you the most amount of money.

Now, my honest recommendation when it comes to this is to check out the Vertex Debt Calculator. I will link to that in the description. This calculator is going to tell you exactly how much each method will cost you, and from that, you can determine whether or not it'll be worth it.

I believe that if it's a very significant savings, then by all means, go the avalanche method and save the money. If it's not that big of a difference, then I have a feeling psychologically it's probably better just to use the snowball method and get the smallest balances paid off first if it's really not going to be that big of a difference.

And now, finally step seven: if you've cut back as much as you possibly can, you're living off the bare essentials, and you're still not making enough money to pay off your debt, there's no way around it. You need to make more money to pay off the debt by either taking up a second job, a side hustle, or working more hours. Basically, you gotta make more money.

I really hate to have super obvious answers here like, “Yeah, well, if you're in debt, just make more money," as if it's like, you know, easy just to be like, “Oh, I didn't think of that! I just need to make more money!” I get it, but that's the reality. If you're doing all of this and you're not making enough money, you gotta find a way to make more money, even if that means you have to work overtime or work nights or pick up a side job and basically just drive yourself crazy.

It's going to be worth it in the short term knowing that in the long term, all of that is going to pay off significantly. And really until then, you're gonna have to make it a priority to put every single spare dollar you have towards paying down that debt and really focus on that as your main objective.

And really with all of this, you must be doing this consistently. I say this all the time in my videos, and it's so true. If you just do this for a few days and then stop doing it, it's not going to do anything for you, and you're just gonna have wasted your time.

If you really want to be serious about making a change and getting debt paid off, you need to stick with this consistently and really make this a priority until all of your debt is paid off. And then, of course, smash the like button for the YouTube algorithm if you haven't done that already!

So, with that said, you guys, thank you so much for watching! I really appreciate it. If you guys enjoy videos like this and you have not already subscribed, feel free to subscribe, hit the notification bell so YouTube notifies you anytime I post a video. Also, feel free to add me on Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there.

And add me on my second channel; it's called the Graham Steffen Show. I'm posting there every single day I don't post here, which means now I post every single day between the two channels. So if you want to be a part of it, feel free to add yourself there. Thank you again for watching, and until next time!