How To Get Out Of Short Term Debt

Listen to our Short Term Debt podcast episode here.

Debt, as we all know, is so easy to get into but extremely difficult to get out of. Having multiple different short term debts can make it confusing to manage and, when only paying the minimum repayments it is hard to get them paid off.

Everyone is different when it comes to paying off debt. You tend to either use the emotional, snowball or avalanche method, depending on your motivation. Your motivation and mindset is key in what drives you in achieving your money goals. Whichever method incentivizes you and gives you the motivation to keep going, is the winner.

In this article, we break down the 3 debt repayment methods and what to do once you know your chosen method. We also explain other options that may be available to help pay your short-term debt off faster.


Emotional Method

Motivation: Psychological
Removing the debts with the most emotional baggage

This debt is also known as the tsunami method. This method has you paying off the debt in order of emotional impact, focusing on the ones that cause you the most pain points.

Whether it’s because of a high interest rate, it’s a loan from a friend or family, or simply one you’ve had for a long time and you just want to smash it out. This approach you are basing your decision on your emotions, getting rid of the debts that carried the most emotional baggage.

Its mentally rewarding when you pay off a debt that you have had for a long time or that’s been causing stress.

Debt Snowball Method

Motivation: Psychological
Seeing the rewards, small victories early on and throughout, helping drive you.

The Debt Snowball method involves paying off your debt in order of smallest to largest, focusing on the smallest debts first. When the smallest debt is paid in full, you roll that minimum repayment you were paying to the next smallest debt.

This method can be psychologically rewarding as you eliminate entire debt balances rather quicky and see immediate progress. By the time you get to the last debt, you’re able to pay large amounts towards it because you have no other debt to pay off!

Debt Avalanche Method

Motivation: Financial
Paying it off as fast as possible with the least amount of interest, for those with high interest debt.

This method is where you pay off the debt in order of interest rate, focusing on the highest interest earning first. You make the minimum repayments on all debt, then use any extra funds to pay off the highest interest rate debt first.

By focusing on the highest interest rate debt first, like credit cards, you’re going to save in interest costs over the long term. You’ll also reduce the time it will take to you to pay the loan balance in full.


Once you’ve determined the way you want to pay your debt off, you need to sit down and analyse your debt and finances.

Step One: Itemise your debt
Write down all of your debt, what they are and their outstanding balances and structure them in order of priority. For debt snowball method, this would be in order of smallest to largest. If you are using the debt avalanche method, the order would highest to lowest interest rate. And for the emotional method, you’d order it by your emotional priority.

Step Two: Analyse your expenses.
If you are really determined to smash out your short-term debt, it’s important to review and analyse your expenses / finances. You may find there are opportunities to minimise some expenses (extra money to go toward debt!) and it will help to avoid having to use short-term debt again in the future.


Debt Consolidation

Debt consolidation is where you take out a single loan to pay off multiple debts (credit/store cards, finance loans etc.). Often when you have multiple debts, there are different payment terms, interest rates, payment frequencies and it can become a bit of a mind bubble. A debt consolidation loan is a good opportunity to pull all of the debts together with one set rate and one lot of repayments coming out.

The key point is to be financially better off by doing this. The whole point is to end up with extra money in your pocket, or to reduce the repayments / interest rates, so over time you’re not paying as much.

Balance Transfers

A balance transfer is where you move debt from one credit card to another. You can’t do a balance transfer with the same bank as your current credit card, so you would be taking a credit card with a different bank. You will find that most banks will offer a 0% interest rate for the first 6 months (note there is a small transfer fee of around 1-2%), so this is a great opportunity to knuckle down and pay off as much as you can while there is no interest being charged. It’s even better if you can transfer to a bank with lower interest rates than your current provider, as this way you will still be saving on interest after the interest free period!

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