How to pay off debt in a year…are you curious what it would take to pay off ALL of your debt in just the next 365 days? I’ll show you.

Have you ever sat down to figure out how to pay off debt in a year – like, ALL of your debt, in just the next 365 days?

I did.

I decided to see how much money we had left on our mortgage – the only remaining debt we have after paying off the last $25,000 of our consumer and student loan debt – and to figure out how I could then pay that amount off in just one year.young couple laying in hammock, text overlay "how do you pay off debt in just 1 year?"

12 months. 52 weeks. 365 days…one circle around the sun.

I’ll share with you how to do the same process with your own remaining debt, so that you can see whether or not you can pay off your debt in a year.

Hint: trust me when I say that doing these steps below will not only change your perspective on your debt, but they might just motivate you to pay it off much more quickly than you would be able to before, even if “quickly” takes longer than a year.

How to Pay Off Debt in One Year – Gut Check Your Numbers

Let me take you through the first several steps to paying off your debt in one year, and then we’ll dig further into the actual how to do it.

Step #1: Confront the Numbers

A little scary – I know. Confronting our own numbers were a little scary.

But you know what else? It was also exhilarating. Because I knew exactly what we needed to make our dream a reality. Defining the problem completely was actually liberating for me.

You see, once you figure out the actual borders of the problem – everything that’s involved to get to the ending that you want – then your brain can start figuring out the “how” to do it.

That means until you confront the actual numbers, you kinda can’t get to the solutions.

Here’s how to confront your debt numbers:

  • Suspend Interest Rate Info for a Minute: Forget about interest rates for the moment – because, yes, if you were to send in a lump sum payment to wipe a debt off the face of the Earth, you might still owe a bit more due to the interest that accrues before your payment was received and applied.
  • Add All Debts Up: If you want to be completely debt-free in 12 months, then include every debt you own (credit cards, student loans, Aunt Marge, car notes, mortgage, etc.). If you want to just get out of non-mortgage debt, then take out that debt (that’s what we did). Come up with one, big, hairy-scary number.
  • Divide that Number by 12: Take your total sum of debt, and divide it by 12. You now have a ballpark figure to shoot for*.

For our remaining $25,000 in debt, divided by 12, I figured out that I would need to pay $2,083/month.

*You should know that by just adding up your debts and dividing by 12, you won’t actually get to the specific number you need to send in each month to pay it off – that’s because interest is going to accrue on your debts every day of every month to come, adding to what is owed.

But before we get into that nitty-gritty of dealing with your debt, I wanted to show you how to get a quick overview of the kind of payments you’re facing to make this happen. We’ll dabble in all the rest, later.

Step #2: Subtract Out What You’re Already Paying

You’re already making debt payments each month to all of your debts (and if you’re not? You might want to check out my article on how to deal with debt collectors).

Add up the payments you send in every single month, and subtract that from the monthly number you need to send in in order to pay off your debt in one year.

This is the GAP that you have – the space between what you’re currently doing, and what you need to be doing – that you’ll need to come up with in order to get what you want (debt freedom in one year).

For us, this was $975/month. When you subtract this from the amount we’d need to pay each month to reach our goal – $2,083/month – we’re able to see that we have a gap of $1,108/month.

Step #3: Figure Out How to Fill the Gap

Haha — I know, this step sounds a bit vague and even “duh”.

Don’t worry, we’ll get to ideas on how to fill your gap, but it’s worth noting that in order to get from here where you are (in debt) to debt free in one year, you’ll need to find a way to send the extra cash each month to your debt.

The first thing you want to do is to figure out where to send the extra money to first. The order in which you pay off your debt makes a difference. Let me show you what I mean.

How to Pay Off Debt Fast Calculator

I created what you could call a “how to pay off debt fast” calculator over six years ago when I created a debt payoff course.

And I’m going to give it to you, for free.

Because it’s a really great tool so that you can see – for your personal debt situation – your current payoff debt date, and how you can manipulate that date by switching up how you pay off your debt.

This is way more than a budget to pay off debt spreadsheet – it’s a way to play with your numbers and see which debt method is going to pay off your debt the fastest.

For a recap, the different debt payoff methods are:

  • Debt Snowball (aka, “Quick Wins”): Pay minimums on every debt owed. Throw any extra toward the smallest debt. Once you knock that debt out, you then take all of the extra money + minimum payments you were throwing towards the first debt and roll it into the next smallest debt. In essence, you are making a “repayment snowball” that keeps getting larger and larger after each debt payoff to ram into the next debt owed.
  • Debt Avalanche (aka, “Interest Payment Minimizer): Pay minimums on every debt owed. Throw any extra cash toward the amount of debt with the highest interest rate. Once you knock that debt out, you then take all of the extra money + minimum payment amount you were throwing towards the first debt, and roll it into the payment of the next highest-interest debt (thus creating an avalanche of money as you travel down your debt payoff list).
  • Debt Tsunami (aka, “Offload Emotional Baggage First”): Pay minimums on every debt owed. Then figure out shedding which of your debts will give you the most lift and will relieve you of the most emotional pain (could be a debt from an ended relationship or marriage, from a family member lording it over you, business line of credit on a business idea that sunk, paying on a car that was wrecked, from a big mistake, etc.). These emotionally-charged debts become the ones you tackle first, no matter what the balance amount nor the interest rate is compared with your other debts.

Here’s The Debt Manipulator 3.0 Workbook DBP. Download it for free, plug in your debts and interest rates, and find out where you’re at!

Also, you can access my entire Debt Bustin’ Challenge here, for free.

How to Pay Off 40K in Debt Fast

Having written everything above, I want to now take you through a real-life example debt amount, and show you how to pay it off quickly.

I’ll pick the number $40,000, since it’s around what I graduated college in debt with (my total had been $36,000).

So, how do you pay off 40K in debt, FAST?

For this scenario, I’ll say the debts are the following:

  • Student Loans: $25,000, at 3.6%, 6.9%, and 9.0% interest
  • Credit Cards: $10,000 at 13% interest
  • Medical Debt: $5,000 at 0% interest

Here are the exact steps I would take:

  1. Consolidate Student Loans: I consolidated my own student loans, and so I’d definitely look into whether or not I could get a smaller interest rate by consolidating these. HOWEVER, I should warn you that I didn’t consolidate all my student loans. That’s because the majority of my loans were federal ones at a lower interest rate, and then I had one private signature loan through Sallie Mae that was smaller, but at 9% interest. If I had consolidated that 9% interest loan in with the others, it would have brought the interest rate up on the bigger amount of money. So, I kept that separate and paid it off quicker.
  2. Negotiate the Medical Debt: I’ve got several articles on how to negotiate down your medical debt. You would definitely want to check them out to help with negotiating your own medical debt to as low as you can get it. Here’s how to dispute a medical bill in collections, how to haggle medical costs like your life depends on it, and our own experience with negotiating a medical bill (spoiler alert: we only kinda won this one). We did, however, win this $1,097 battle (meaning, we didn’t owe it any longer), and here’s the exact letter I used to clear things up.
  3. Plug the Numbers into the Debt Manipulator Workbook: Next, I would plug my new/final numbers into the free Debt Manipulator Workbook. I’d need the overall debt amount, the minimum payments I’m sending in, and the interest rates. This will give me an idea of my debt freedom date, as is.
  4. Choose a Debt to Attack More Aggressively: While paying the minimums on all my debt balances, I would choose one debt to send in any extra cash I can find. You’d know which debt to choose by the debt payoff method you choose. I would choose the Debt Avalanche (discussed above), meaning I would send any and all extra money into my credit debt, since it has the highest interest rate (13%).
  5. Get a Visual Debt Tracker: I’m a huge proponent of seeing progress towards my goal right in front of my face. Here’s my article on debt payoff trackers. Not only that, but I’d get a free couple’s budget app ASAP (if you’re doing this with a partner) so that the two of you can keep a laser-eye focus on everything and be in this together.
  6. Send in Half Payments: Instead of waiting to send in one whole payment each month, I would send in half payments. By paying half of what’s owed halfway through the month, I would be cutting the amount of interest accrued and compounded (especially since the interest is compounded daily).
  7. Send in Extra Cash: I’d start thinking of all the low-hanging-fruit extra cash I currently have to send into that debt that’s the costing me the most in interest. My husband and I keep two change jars around our home, and they haven’t been cashed in a loooonnnnnggg Time to cash them in at our bank and send that money into a debt. I’d guess we have about $200 in change right now. Next, I’d send in the $200 our parents gave us over the holidays into that debt, too. My husband just received a 3.5% pay increase, so I’d calculate the extra we get each paycheck, and send that amount into this debt. I once carpooled to work for about 6 months, and got $40 in cash paid to me by the person who was riding in our car (per month). I’d send that in, as well.
  8. Consider a Balance Transfer: Since this particular debt I’m trying to tackle on top of the minimum payments of others, is a credit card, I’d attempt a balance transfer offer. I’d see how much it would cost in a balance transfer fee for me to open up a new card with a new company, and then get a 0% introductory rate for 12 months or so while I pay off this debt completely. I’d make note of the end date (meaning, the deadline that I have to have it paid off by), and would ruthlessly attack it – which is going to be easier now that it won’t be earning interest compounded daily. And I would never charge another thing on this new card (which could subject my whole balance to interest).
  9. Send in Our Vacation Fund: We always keep a little cash in another savings account for a future vacation fund. Though it would hurt, a lot, I would send that entire amount into our highest-costing debt. Right now, that would be about $2,000. With what I found above, this would be over $2,500 in “found cash” to send to that debt! We’re on a roll.
  10. Audit Our Spending: I would definitely, definitely, take a closer look at our spending. For starters, I recently turned in our tax return info to our childcare (on a military base), and they lowered our monthly childcare costs by $14. That’s a win! I’d turn our thermostat down a degree in the winter/up a degree higher in summertime (small pains for some real gains! Heck, maybe my husband wouldn’t even notice).
  11. Prioritize Our Money: Here’s the thing – some people in gazelle debt payoff mode who want to pay off 40K in debt FAST would likely stop contributing towards their retirement accounts. I wouldn’t. Because I know my priorities. In the last 15 years of contributing towards retirement, I only didn’t max out my IRA one year. I intend to keep that pace going, so I’ll just need to find the money elsewhere. You have to decide for yourself. For me? I just don’t want to possibly bankrupt my future self because I decided I want out of debt this minute. I’ll need to get more creative than that.
  12. Look at What to Put on Hold: Since I’m going to be paying off ths 40K FAST, I know I won’t be in debt payoff mode forever. Not only that, but once out of it, I’ll have opened up like around $800 in monthly cash flow back into our lives. SO, as part of that spending audit, I would start to look at things we want to/need to buy soon, and see what I can put off for a year or so while I’m intensely focused on paying down this debt. Then, I’d list out, by priority, which things get bought first with that extra $800/month we suddenly will have back next year or so after we’re done. Again, this is a big of a judgment call and only you can answer for you. For us? We would put on hold our 10-year anniversary wedding trip (won’t that feel awesome to get on a paid-for anniversary trip next year, knowing we’re no longer in debt?), and we’d put off our holiday travel for one year (easily costs us $1200/year, and I can use that to instead pay off debt), new clothes, and I would buy my son shoes about 3 sizes too big to skip having to buy him a pair once. Everything and anything can help!
  1. Find Extra Cash to Make: When we did our honeymoon savings challenge, we challenged ourselves to find an extra $2,500 outside of our paychecks to help towards our 11-day trip to Austria. And guess what? We pretty much did that, in just a 10-month period. Here are ways to make extra cash from home, fast that can help you find more money to put towards your debt payments.

Those are some of my specific ideas and examples from our own lives that I would do to tackle 40K in debt, fast.

But what if you’re really low on income and you still want to get out of your debt?

Help for How to Get Out of Debt on a Low Income

So, how are you supposed to get out of debt if you’re on a low income?

Aside from paying attention to that section above where I outline how I’d pay off 40K fast – there’s a lot of good nuggets there that will hopefully inspire you – I’d like to talk about a few other options for you.

First of all, you’ve got to be willing to make cuts that many other people aren’t willing to make. That’s because there’s less to cut out of your budget, already.

For example, you can cut your cable. Just get rid of it. You don’t have to get rid of it forever, but for now, you simply can’t afford it because it’s helping to keep you in debt.

Instead, check out DVDs from your local library.

You can downsize to one car (if you aren’t, already). My husband and I lost both our cards to flooding just a little over two years ago, and we’ve been driving one car ever since. This, alone, has saved us about $160/month in costs (for things like gas and insurance – if we had a car payment, which we don’t, then this would be costing us even more!). You can read all about our one-car family here.

Look into getting rid of bloated cell phone plans just because you want the latest phone. For me, I realized I was paying $83 with Verizon when I could pay just $39.99 with Virgin Mobile. I switched about three years ago, and haven’t looked back (if you’re doing the calculation? That’s an awesome $1,548.36 in extra cash for our family from one little move. Wow!).

Those are just a few ideas.

Other tools you might be able to use:

Psst: while I don’t specifically know of any grants to help get out of debt, I did write this comprehensive resource on 197 emergency financial resources where you might be able to get help with your bills.

Inspiration – How I Paid Off My Debt

I’ve written extensively about our own debt payoff journey because I know how inspiring others’ debt pay off stories were for ME when we were knee-deep in getting ourselves out.

Here’s where you can read more about how we paid off our own debt wayyyyy earlier than creditors wanted us to:

Wow. That was a lot of information I just sent your way. I hope you made some mental downloads (bookmaker this article, if needed), and can find ways to use this information in your own life. The bottom line to remember is that you can do this. It may not be as fast as you’d like – in fact, it took us a full 5 months longer to pay down our debt than we wanted – but when it happens, you’ll never look back. The rewards are worth it!

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Amanda L. Grossman is a Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 10 years, her money work helping people with how to save money and how to manage money has been featured in Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.
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