9 Debt Payoff Hacks that Work and 3 that Don’t

 

payoff debt pen

These are 9 debt payoff hacks that actually work.

I did some research before writing this post.  I’m always horrified whenever I realize the amount of advice at the top positions in google search results that is bad.  The subject of paying off debt is no exception to this rule.

More on that later.

Every blogger writes an obligatory post on how they cut corners to payoff debt.  This is my attempt at that.  This is an updated post.  Originally, this was my third blog post.  It’s now reformatted.

Another thing about this research I did.  The stuff that tends to hold a lot of the top positions is easy Band-Aid solutions to paying off debt that doesn’t involve actually solving your problem.

It’s usually a matter of taking out a new loan or opening up a new credit card to transfer debt from one location to another.  You might save money on interest, but you aren’t fixing your problem.

These are ways to payoff debt without earning any money.  All your doing is replacing old debt with new.

The debt is still there!

The debt payoff hacks I talk about actually work.  They involve lifestyle changes and changes in thinking that enable you to payoff the debt you owe.

Nothing else will work.

It’s just clickbait.

Any success I’ve had with paying off debt is 99% attributable to my wife. She is Chinese and grew up in Taiwan. She has no formal training in investments or finance. She has never read a personal finance book in her life. But she came from a family and, to a certain extent, a society that frowns on debt.

She freaked out when she realized I had $32,000 in student loans and several credit cards while in my last year of college.

The sad thing was, I didn’t really need the loans, I just wanted some extra money to live a little larger. I was on a full scholarship and had a job in the dorms that gave me free room and board (Yes, I was stupid). One of the many reasons I married her was her attitude towards money and her ability to keep me straight.

She insisted we pay off our debt immediately, and we did. While still in college, we paid off $32,000 in student loans, and all our credit cards. This was done by both of us taking extra jobs, or hustling, as it is called.  This frugal living also allowed us to pay off our $280,000 mortgage in six years.

To this day, we are debt-free.  We even invest in real estate without using debt.  We do this on a single military income.  We currently own twenty properties that are paid off!

We have always been able to maintain a high savings rate by eliminating unnecessary expenses. We are TOTALLY against keeping up with the Joneses. The Joneses might seem to have some great stuff, but their financials suck!

I want to share my best debt payoff hacks. It has allowed for a killer savings rate that enabled fast debt payoff and the ability to save and invest well.

Houses

debt payoff house

This is where the biggest chunk of everyone’s income goes to, so it’s worth talking about a little bit.  Spend the least amount of money you can on housing.  Don’t buy unless it makes financial sense.  If you can live close to work, that cuts down on the commute and the need for vehicles in some cases.  If you can eliminate one or both vehicles because you live that close to work, WIN.

Read my article on should I buy a house or rent.

If your goal is to live in a nice house and throw expensive parties for your friends at your expense, while remaining poor in all other aspects of life, then buying a big house is the right thing to do!

In all seriousness, this is where we Americans make our biggest mistake. It’s the American dream of owning a big house. We like a big front yard, massive backyard, built in BBQs, pool and terrace, lots of bedrooms and bathrooms, and gorgeous, large kitchens.

We love two-car garages to house our beautiful, brand new shiny SUVs, luxury sedans, boats and campers.

You may already be in a house that’s too expensive or too big.  Seriously consider downsizing or moving closer to your work if it will save you money in the long run.

The conventional wisdom is, if you rent you are throwing money away. If you crunch the numbers based on your personal situation, the opposite is often true.

I purchased my personal residence in 2003 for $280k.  It shot up in value to more than $400k less than two years later.  I’m Rich!! Right???

I sold that property in 2016 for $400k.  When you run the numbers, the S&P 500 grew at an average of 6% per year between 2003-2016.  It outpaced the appreciation on my house by a lot.

I would have been better off renting and investing the surplus in index funds.  The value of the house would have to be more than $600k to beat the S&P 500’s growth rate over that time!

Don’t count on home appreciation making you rich.  It’s a myth.  It’s impossible to predict what will happen with home prices.

Home ownership can kill you on maintenance, HOA fees, property taxes, and mortgage interest. The illusion that the tax write off makes this a better deal is just that, an illusion.  My property taxes on the house in question exceeded two months’ rent.

Do the math and make sure that buying is actually financially superior than renting.  That’s not always the case

I’m in the military. I’ve lived ten different places in the last eighteen years. It doesn’t make a lot of sense for me to buy a house.

If you must buy, get the smallest, most affordable house to meet your family’s needs. I can’t emphasize this enough. It should be a house that could become a great rental should you decide or be forced to move early for some reason.

Find out how to calculate if your house will be a great rental.

My point is, even if you are intending on living in your house long term, you should run the numbers on your home before you buy to insure it would make a good rental if you had to move.  If it wouldn’t, I would strongly consider renting instead of buying.

Vehicles

debt payoff porsche

Vehicles are your 2nd biggest expense next to housing.  Fix these two things first, and you are well on your way to paying off debt!

Vehicles cost a fortune! They are one of the main things that keep us from saving and investing money.

Some people will often think they are doing a good job saving. If you have two (or more) new/newer cars financed, you are making a huge financial mistake! How about his and hers Harley Davidson’s on top of that? Maybe a boat?!?

You suck at money!

There are hordes of websites devoted to ditching vehicles and switching to bikes and local transportation. You’ll save more, be able to payoff debt, you’ll be happier and healthier.

Sell your financed vehicle(s).  You may need to come of pocket to get rid of that debt.

So be it.

Replace them with a reliable used vehicle with one previous owner, low-miles that you pay for in cash (ideally).

Want to do even better?  Payoff the debt on one or both of your vehicles and switch to public transportation.  I talked earlier about housing and moving closer to work.  This is where that part comes in handy.

Do I have authority to write this stuff because I’ve always been financially brilliant when it comes to cars? Yes, of course! Here’s a good example.

When I was in college and still dating my wife-to-be, I got bored one day and went to a car dealership to look for a reasonable car to buy. The dealer sweet-talked me into a Shiny 300 ZX Turbo with T-tops. Hell yeah!!!!!

payoff debt 300z

Only $4,995. I asked about the funny noise it was making. He said the car hadn’t been driven for a few months, and the noise would go away when the car gets warmed up. AND I BELIEVED HIM!

When I came home and surprised the wife-to-be with our awesome new ride, I was disappointed by her lack of enthusiasm. I got mad at her for not sharing in my enthusiasm. I reminded her the car was for US! She reminded me that she didn’t drive stick shift. I think I probably knew that, and just didn’t care.

Long story short, I bought a black leather jacket and got a ticket in that car the first day on the road. A few more tickets in the weeks following.   I ended up lucky to find someone to buy it for $1000 a few months later when the transmission and electronics died on it. The inside of the car made Knight Rider look like nothing (before the electronics died).

payoff debt 300z electronics

That was a stupid mistake, but once in a while I do something right. The 1980 Honda civic that I bought my first week of college for $600, I sold when I graduated four years later for the same price.   My wife said it looked like Mr. Bean’s car.   I’m not exaggerating when I say the water pump literally fell off the vehicle as the new owner drove away. Timing is everything.

I’ve spent the rest of my life (so far) making what I think are smart choices with cars. I hunt for good deals on used cars that have great resale value with the intention of not losing any or much money when I sell it down the road. Toyota and Honda cars and SUVs have worked for me. This frees up more money for savings and investment.

Increase Your Income

debt payoff get a raise

Here is another “hack” that will actually make a huge difference in paying off debt.  You increase your income.  I know that sounds obvious, but it needs to be said.

Ask for a raise.  If you are going to stay in this job, get that raise.  If you deserve a raise, and aren’t going to get one, maybe you’ll have to think about getting another job.

Consider changing careers.  Taking job satisfaction into account as well, you need to consider changing jobs if it can give you an income boost.  Changing careers, or at least employers can also be smart if it means a shorter commute, maybe even giving you the ability to not need a vehicle.

Work overtime.

Side hustle.  Start some kind of part-time job in your extra time that makes some money.   A blog is one choice, but it typically takes a while to start turning a profit.  Find a way to monetize a skill or passion you have.

Furniture

There are a lot of people that waste money on furniture.  It’ll keep you deep in debt.

Maybe you.

I’m in the military, and we (military members) love ourselves some overseas furniture shopping.

Yes, the typical military family will pick up some beautiful items while in Japan, a few more in Germany, some rugs from Turkey and the Middle East, and have gorgeous items to display in their large homes.

This is a huge mistake.

It goes right back to the American dream of the massive house with 6 bedrooms and 7 bathrooms (and enough stuff to fill it).  We don’t need this stuff.  They’re just possessions, and expensive ones.

If you have it, sell it.  Buy cheap, functional furniture that will get the job done.  This can be done tastefully and creatively.  We have to stop being consumers that just buying crap because we can.

Downsize your possessions so you can downsize your house.  My net worth is probably at least five times the average military officer, but my amount of household goods, probably 1/5.  See the correlation?

I don’t have my money tied up in stuff like furniture.  It’s tied up in real estate and index funds, where it should be.

Throughout our lives, we have bought furniture for function, not for fashion.   Buying used or getting a great deal was the goal.

When I was stationed in Guam with the military, there was a hurricane that devastated the island. It caused water to leak into the warehouse that housed the merchandise from the furniture store.

For some strange reason, the military decided to sell any item that was in a box that got even a little bit wet for 75% off. We stocked up on all the furniture we would need for the next 10 years, and even bought a few extra items as an investment. Over the years, we’ve sold all of it off for a profit after getting years of use out of it.

Buying used furniture on Craigslist or on some local community Facebook page has saved us thousands of dollars over the years. Ikea is great, but you’ll save more money buying it used and assembled.

I remember buying a dining table at K-mart for $99. We used it for about 8 years, and then sold it when I was overseas in Japan for $200.

Vacations

debt payoff vacation

We all deserve a vacation once in a while. Vacations can cost a small fortune, and in some cases, the cost of a pretty nice used car. These vacations should be rare if you’re still paying off debt.  While it seems like I’ve always had great vacations, I’ve been smart about the way I’ve taken them. Usually, I’ll take advantage of where the military has sent me, and try to vacation in those locations.

The biggest way to save money on vacations is to avoid paying for airline tickets, hotel rooms, and eating out.   The best way of all is to take advantage of existing geography.  Drive to your vacation spot instead of flying.  No need for rental car now.

Combine that with renting an apartment through Airbnb instead of a hotel and preparing most meals in the kitchen, you’ve just saved a fortune!

Hotels are so old school!

  • They are expensive
  • No laundry (or absurdly expensive)
  • Parking is always a pain or extremely expensive!
  • All meals must be eaten outside the room!
  • It’s so crowded if you have kids and you have no privacy or space
  • They are tiny
  • They sometimes still charge for Wifi (are you kidding me!)

Airbnb, or something like it, excels in all the above areas. They are:

  • Much cheaper than staying in hotels.
  • Often, laundry facilities included (makes a huge difference for packing)
  • You get an entire furnished residence to yourself to use, often with designated parking.
  • Tons of space! 2 or 3 bedroom for much cheaper than a normal hotel room
  • You can cook some or all of your meals in the residence (MASSIVE MONEY SAVER)

Clothes

Clothes are different than cars and furniture, because it is difficult to recover any of the costs. Selling clothes usually doesn’t get you much money. For this purpose, don’t waste money on clothes.

Buy what you need to look professional. Buy what your kids need for school, but stay away from the expensive, trendy, fashion junk until you can actually afford to do it someday. At that point, you will be able to afford, but won’t care anymore!

Buy clothes because you need to, not because you want to. This might be difficult to explain to a teenage daughter, but I know you can do it!

Phones, Cable, Entertainment

debt payoff cell phone contract

The worst thing you can do for your debt payoff plan is continuing to get the newest iPhone and renewing your overpriced contract that is impossible to ever get out of.  Yes, I’ve done it in the past and kick myself everyday.

Stop doing it.

Any idea why apple’s stock price is so high?

They convince us we need a new $1000 phone every year.

Never get a contract again.  Buy a decent smartphone that is about two or three years old model-wise, and you’ll save a fortune. Do you know how cheap it is now to simply buy a month-to-month phone plan with data and no contract? In the United States, you can do it for like $15 or $20 a month.  I did it in Germany for about $14.00 per month.  In Korea currently I’m using my workphone only, so no personal bill.

Do you really need Amazon Prime?  That shit is expensive, and then your incentivized to buy even more crap online!  Think hard about that!

Forget paying cable, that’s as old school as it gets. What a waste of money!   You can get by in life without cable. Figure out how to use the internet, there is tons of free stuff. A Netflix membership should be the most you ever spend on entertainment (probably still unnecessary, but my brother works there).  I’ve heard of people pooling together and sharing Netflix accounts (don’t tell my brother).

Birthdays, Anniversaries, Valentines, Christmas, blah, blah, etc.

Most of you won’t get away with this quite like I do, but do your best to not overdo Christmas and Birthday gifts. My wife is unique in her approach to this stuff. She doesn’t want anything on Valentine’s, our anniversary, Christmas, or her Birthday. I really mean it! I once bought her expensive flowers on Valentine’s day and she told me I was stupid for wasting so much money!! She doesn’t need this crap.  Many of us do, and that’s understandable.  Don’t let it get out of control.  We try not to spoil our kids by keeping birthdays and Christmas simple. We usually limit each child to one reasonably priced gift. I have saved a fortune not overdoing these overdone holidays/occasions.

A real estate investor friend of mine posted that she finished her Christmas shopping early.  Number of presents purchased.  Zero.

She focuses on the true meaning of the holiday, and spends time with family and takes a great vacation.  She doesn’t waste money on buying her family and everybody she knows a bunch of crap.  I’m almost doing as well as her.  Probably under 10 gifts total for Christmas. No, I’m not a scrooge.

Putting Extra Money Towards Debt

Learn how to be frugal and live on a budget.  When any extra money in any form comes into your life, that goes towards paying off debt.  You may get money from places like:

  • Cutting expenses
  • Raises and Bonuses
  • Tax refunds
  • Side hustles
  • Inheritance

It all go towards debt.

3 Debt Payoff Hack Myths

The problem with most of these so called “hacks” is they don’t payoff debt.  They repackage it, delay it, or shift it around.  Not good enough.

Don’t Refinance Your Vehicle

This is a very common “hack” on the top websites on google search for payoff debt hacks.  Refinancing is a way to save money on interest over the long run.  Maybe you are able to refinance into a better interest rate and lower payments.  That’s great.  Money saved over the long run.  But guess what?

You probably just made your loan LONGER.  Maybe from three years back to five!  I thought the idea was to eliminate debt?  You just stretched it out.

Your half-solving your problem.  If you sell the car, payoff the bad loan, and get a car you can actually afford, that’s solving the problem.  Biking to work or taking the bus, even better.

Don’t Put your Debt onto Credit Cards with No Interest

Another great idea championed on many top sites.  You’re in debt because you opened too many credit cards and your spending got out of control

Proposed solution?

Open more credit cards!

They want you to find credit cards that will offer a temporary period of no interest and then transfer your other debt to it.  Again replacing debt with debt.  Half-solving your problem.

How about just pay the damn debt off by following all the steps I suggested earlier.

Taking out a Home Equity Line of Credit (HELOC) to Consolidate your Debt

More shifting debt around!

The logic here seems sound at first.  HELOCs can get a low interest rate, and then you can use that to pay off all your high interest credit card and other debt.

You make savings in interest.

BUT!

Credit card debt is unsecured debt.  If you default on it, they don’t really take anything from you, it just ruins your credit.

HELOC is secured against your home.  If you can’t pay it, they foreclose on your home.  Why voluntary transfer unsecure debt to secure debt?  That could really backfire on you should you lose your job, become disabled, or have some other serious money issues in the future.

Bad idea.

So there you have it.  Payoff hacks that actually work.  Go out and give them a shot.

What are your best payoff hacks?

Leave your comments.

Check out my most popular page – The Complete Guide to Real Estate Investing

Interested in how I invest?  How to Invest your Money and Retire Early

Rich on Money

 

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12 Comments

  1. Donta

    Thanks for sharing your story. Unlike you (or countless other super smart people in FI space), I was terrible with money for the first 20 years of my adult life. Before I knew it, I was up to $80K in debt with zero saved for retirement. In 2015, I read Dave Ramsey’s Total Money Makeover and my mind started to look at money and debt totally different. I am slowly crawling my way out of debt and I look forward to the day when I can be debt free.

    • That’s awesome. It’s a great book. You are well on your way! Let me know if I can help.

  2. Awesome post! You hit on all of the major money-wasters. I couldn’t agree more. I also agree with you that re-financing and switching to zero-interest cards is not really helping the symptom of the debt. If you can’t feel the pain, it’s hard to have the desire to get rid of it.

  3. Great advice and I like the shoutout to your wife. Question: I feel like we’re doing most of this right but live in a very HCOL area. Our house is quite modest but still expensive in absolute terms, and renting is worse. What would you do in this situation?

    • Complicated question. How long do you think you will stay put? When did you buy and for how much? What are your mortgage terms and how much equity? Where did you buy? Sounds like SoCal. I grew up in Yorba Linda. You can answer here or send me an email. I’ll give you my two cents.

      • Would love to hear your thoughts! Yes, we’re in Los Angeles, and our jobs are somewhat location-dependent so have no immediate plans to move. Our house is very conservatively worth $820,000 at the moment (Zillow says $940,000), and we owe $370,000, 25 years left at fixed 3.5%. The last rent we paid was $2600 for a 2BR, which is more than our PITI.

  4. Jen

    Hey, I checked out your blog back in 2016. My husbands also AF and we were stationed in the UK at the time. Now we are at Macdill and we purchased a house we plan to keep and rent out. Our mortgage is $1,116 and we could rent it out for about $1800-1900 in the current market, so a good ROI. We live very close to base about a mile from my husbands job so we have 1 car and sometimes he bikes and on the days he doesn’t I bike the kiddo to school. We’ve been doing this for only 6 months I want to do it for the entire time we are here (3 yrs). My husband on the other hand really wants a TRUCK ugh I just can’t and don’t want to give in. I told him once we have enough CASH earmarked just for the truck we will buy one ugh so not happy about it. Cars are a huge waste of money but not sure how to change his mind. Have even thought about selling our 2012 accord so he can get a truck. Two cars means paying more insurance which just makes me mad lol sorry for the rant! I see you moved to Korea now how is that going? Do you miss Germany?

    • I miss Germany a lot! Korea is ok, but no castles here.

      Hopefully you avoid buying any new or expensive cars, this kills the finances! It sounds like you are doing good otherwise!

  5. Jen

    I should add we are paying an extra $1000 on the mortgage so all of our BHA and most of our tax return on track so to have it paid off in 2027 the year my husband hits 20 yrs. Hopefully sooner but I can’t say how much extra we will be paying on it once we PCS.

    • I know I paid off my mortgage, but I’m not saying that’s a must-do. If you take that extra $1000 and smartly invest it, you could come out ahead in the long run. Just something to consider.

      Now if you end up spending it instead of investing it, then obviously you were better off paying off the mortgage faster!

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