Personal Finance

How to Pay Down Bad Debt—Fast!

Expertise: Real Estate Investing Basics, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Landlording & Rental Properties, Business Management, Personal Development, Flipping Houses, Commercial Real Estate
152 Articles Written
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Years and years ago, when I first started in real estate investing in my mid-20s I paid off all my bad debt in two years.

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I had college loans, a lot of credit card debt, bad debt that was a burden. The reason why bad debt stinks is you've got to pay money to maintain that debt. You've got to make credit card payments, student loan payments, whatever it is.

This dings your cash flow to the point where maybe I’m making $400 to $500 a month in debt service payments—or maybe it’s more, maybe it’s less. But that’s money you could be enjoying or that could be going toward something that’s really beneficial to you. Instead maintaining this debt can just suck money out of your pocket.

So it’s great to make that debt go away. Here I’ll explain how I did it and how you can, too.

How to Get Rid of Debt

So bad debt is… well, you know what it is. It’s bad. It’s a big chunk of money that you owe. This weighs you down. The way it stings you is you have the little amount of money that you owe each month.

There’s two ways you can attack it.

Pay It Off in One Big Chunk

The first is you can go and do a large project, let’s say a fix and flip or maybe a couple of wholesale deals. And let’s say you make 10 grand. Awesome!

There are a lot of tips on BiggerPockets on how to do that. Then you take that $10,000 and you could make a stupid choice, like taking your family on vacation, or you can take it and pay off your bad debt.

You should obviously pay the debt because it will create cash flow for yourself since that monthly payment won’t be there anymore.

So that’s one way to get rid of it—attacking it by throwing a big chunk of money at it all at once.

Pay It Off Over Time

I personally took another angle. This works particularly well if you’re younger, not married, and don’t have kids. The reason for that is I’m going to suggest adjusting your living situation.

If you do have kids, it’s OK. Kids are actually pretty versatile, and they can live in the situation I’m going to describe to you here. And if your spouse is on board, which is 100 percent imperative if you’re married, and wants to eliminate all the bad debt, too, that’s even better.

Young couple using a computer,checking bills and paperwork.

Related: How I Went From $100,000 in Debt With No Job to Debt-Free in 5 Years

3 Tips to Pay Down Bad Debt & Increase Cash Flow

Here’s how I got rid of my debt when I was single.

1. Reduce Expenses

The first thing I did was reduced my expenses by living below my means. That means if I could afford a mortgage or rent payment that was $1,500 a month based on my income, I chose to find something where paid less—let’s say $1,200.

You could maybe do this by living in a different area, maybe not living with a Starbucks down the street or whatever. I wanted to do anything I could to reduce my expenses.

2. Eliminate Luxuries

Other expenses I had included car payments. So instead of driving a brand new car every two years with a payment that never goes away, maybe pay off the car or get an older car that doesn’t have payments and can be purchased with cash.

I also recommend eliminating stupid expenses like Blue Apron. OK, it’s not stupid. But it’s a luxury. You don’t need to have food delivered to your house. Get rid of luxury items.

So what I did was found a way to reduce my expenses and live below my means. Yes, that is difficult for most people to do because most people in America live above their means. But the first step to paying off bad debt is just simply living below your means.

Examine everything in your life, looking at all your expenses and saying, “Do I really need this stuff? Would I rather have Blue Apron or be financially free sooner?”

3. Hack Your Living Arrangement

The other thing I did was a house hack. That’s real estate slang for living in a property that I own while also having other people live there who are paying me rent.

I personally lived in a single family home I bought. It was three bedrooms, one bathroom, and I got it for $150,000. My mortgage was $940/month.

Sure, this was a few years ago. But you could still make this strategy work. To get the most out of it, maybe you need to find a new neighborhood or charge more for rent.

So I charged $500 a month plus a third of the expenses to two friends of mine who I had living in the two other bedrooms. I was making $1,000/month in income and my mortgage was $940. So in essence, I was living there for free. I was actually making $60/month in cash flow, too.

Now apply this situation to a small multifamily. I wish I had bought a duplex or triplex or even a quad. Any of those you can buy on low money down.

I bought my single family at 3 percent down. I think I paid $4,500. To come up with that if you don’t have it, then you first have to reduce your expenses, save up, and then buy.

Young african man relaxing at park in a summer day.

Related: How I Paid Off $85,000 in 16 Months

These Strategies Will Pay Off

I’ve seen house hacking work in most parts of America. It’s just got to be an area where people are willing to rent. And like I said, a small multi like a duplex, triplex, or quad is even better than a three bedroom, one bathroom.

If you’re young and single, like I was at the time, do this. If you’re married, still consider it. See if your spouse is open to it so you guys can reach financial freedom sooner.

By reducing my expenses and eliminating my housing costs, I created about $3,500/month to do whatever I wanted with. I could go and do a lot of fun things with that money, but I didn’t.

What I did was I threw all of that at my bad debt, and I was able to pay it off very quickly. I paid off $20,000 in student loans and around the same in credit card debt—so $40,000—and I did it in two years.

I didn’t always have the full $3,500 every month, but I did religiously throw any extra dollars I had toward those debt items.

Now if your debt is more than that, that’s OK. You just need to be diligent, reduce your expenses, and house hack. Stay the course.

It might take more than two years to pay it all off. But maybe you could do both angles I’ve talked about?

You could do some large chunks of cash activity, where you do a wholesale or a fix and flip and you throw that money at the bad debt. And then you also look to reduce your expenses and house hack.

These things might not exactly sound appealing to everyone. Nobody wants to do them. People want to live well, spend money when they want, and do lots of great things. But the folks I’ve seen who are successful are willing to live for slightly delayed gratification.

So if you’re willing to cut out that Blue Apron and maybe not drive a car that’s got a $700 monthly payment and reduce your expenses in all possible ways, do that. What you realize if you’re going to play the long game in life is that within two to three years you can go get that luxury car, because you made the bad debt go away.

Then the $300 to $500 a month you’re paying toward those credit cards and two phones or whatever it is, that goes into your pocket. It can become a fun car payment eventually.

Watch my video above where I go into further detail about my story and about how you can replicate what I did to get out of debt. Have a great and profitable week!

Were you able to pay off your bad debt in some other way?

Tell your story below in the comment section. 


Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

    Cindy Larsen rental_property_investor from Lakewood, WA
    Replied 6 months ago
    Matt Great video and article as usual. I just wanted to mention a strategy I once used when I had high credit card debt at horrible interest rates. The strategy was to accept an offer for a new credit card that has 0% financing on balance transfers for six months. These are great offers if you use them carefully. By transferring your worst interest-rate debt to the new credit card (and maintaining the same payment amount that you would be paying if you left the debt where it currently is) All of your payment is going to paying off the debt instead of paying interest. I used this strategy over the course of two years to pay off $13,000+ worth of debt, by transferring my remaining balance to a new card every six months.
    Matt Faircloth rental_property_investor from Trenton, NJ
    Replied 5 months ago
    Hey Cindy, I love this, thanks for pointing it out. Low and no interest credit cards are easy to get even if you have marginal credit. As you said, handle them with care because the rate will jump to the mid to high teens once the introductory period is over. I have seen people leverage these cards as you did to expedite paying off the debt, and I’ve seen others dig themselves a deeper hole with them also. Thansk for the comment!! Matt
    Andrew Pearson rental_property_investor from Anderson, IN
    Replied 6 months ago
    Call me a nerd, but paying down debt is currently a passion of mine. Here are a few of my random thoughts on the subject: 1. Whether to pay down debt or invest? Investments carry a certain degree of risk while paying down debt is a guaranteed way to increase disposable income. You may not get the return on your investments you planned for, especially early on. I speak from experience. I’ve never met anyone who regretted paying down their debt, myself included. 2. Strategies abound, which is good. I bought a low down payment house but moved out of state a year later. I rent an apartment, but get a discount as an on-site maintenance employee and rented the house I used to live in and use the profit to further reduce my living costs. I also try to take on side jobs and overtime opportunities to further boost my income. Everyone has skills and competencies they can leverage to accelerate their path to a bad-debt-free life. Seek ways to do so.
    Matt Faircloth rental_property_investor from Trenton, NJ
    Replied 5 months ago
    Thanks Andrew! I love the risk consideration, thanks for pointing that out!
    Arthur Ibewuike
    Replied 5 months ago
    Hi Matt, Thank you for sharing your experiences and tips with paying down bad debt. I am thinking about going the wholsesaling route to earn big money quickly. How do you recommend getting access to deals? Sorry if the question is vague, I am a real-estate newbie.
    Matt Faircloth rental_property_investor from Trenton, NJ
    Replied 5 months ago
    Hey Arthur, No problem, we all started from square one at some point! I would find a local wholesaler in your area and see if you can work on their team for a slice of the deal. That’s the best way to advance quickly. If you want to go out on your own instead, there are tons of ways to get deals, most of which are discussed here on BP. I’m not a wholesaler myself so you would have better luck posting a question in the forums on wholesaling. Best of luck! Matt