Need to pay off debt fast? Prepare to make sacrifices

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I have a $12,000 debt that I need to pay off in the shortest possible time. What are your suggestions? My salary is $5,200 a month, and I have a car loan for $1,700 and an outstanding credit card balance of $6,000. Please help. -- Jangle

Dear Jangle,
You don't explain what the hurry is, but I hope someone isn't coming after you for the cash in any sort of menacing way.

Whatever is going on, it's evident that you want that $12,000 loan paid off, pronto. I would like you to do that, too, especially if you're in any kind of danger. Thankfully, you have a healthy income from which to pull. (I'll assume you're quoting a net, rather than a gross, figure.) Unlike a lot of people these days, you appear to have a steady job. Be grateful.

So here is the super speedy primary-debt-repayment plan you requested:

Your first step is to not discount the importance of your other two accounts. You can't let them go delinquent during the time you're concentrating hard on the big debt. Therefore, I estimated $150 for the credit card balance and $400 for the car note, making the combination of those minimums somewhere around $550. Subtract that total from your income and you have $4,650 to pay down that $12,000 on a monthly basis. 

Because you don't specify what your living costs are, I'll have to do a bit of extrapolation. And, in my world, your essential expenses add up to $2,450, which would leave you with $2,200 to go toward the remaining debt. Presuming the interest rate on that loan is around 30 percent -- I'm shooting high, since perhaps that's your true motivation for wanting to eliminate it quickly -- you'd be able to kiss it goodbye in just about six months. Does that sound reasonable? It does to me, but I'm not in your circumstances.

Now, getting back to what I said about essential expenses, that's where you have to take action. Eliminate all extraneous spending so you can have the maximum sum be made available for your goal of quick debt repayment. Can you live on my proposed $2,450 for half a year? Only you know the answer, Jangle. To find out, list and review every line item in your budget and start slashing until you have at least that amount left over.

In the event that cutting down to this or any extent is simply not possible, don't panic. You have three other options:

1. Sell some stuff so you can reduce the debt. Where? Online auctions and listing services, pawnshops, yard sales. Heck, even ask your friends if they want to buy any spare items. Each dollar you eliminate from the balance will help. 
2. Bring in more money so you can increase the payment. Maybe you can work at the mall on the weekends, tutor a child in math or walk some dogs. Explore all possibilities.
3. Lengthen your payoff time. Maybe six months just isn't possible. If this is the case, communicate that fact with the person or institution to whom you owe the money. See what kind of reasonable timeframe you can work out together.

Something to consider, too, is that your car will be paid in full in about five months. Once that payment is gone, you'll be able to apply the extra funds to the loan in question. And after you've satisfied both of those obligations, you can increase the amount you send to your credit card company.

And then it won't take long before you're entirely in the beautiful black -- never again to return to the scary red. Right?

See related: 8 steps to reducing credit card debt, Your first budget in three easy steps

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: October 27, 2010

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