If you have debt, you’re not alone. The average American carries more than $100,000 in debt.1 That existing debt load means unexpected expenses such as medical bills can be a tipping point into financial insecurity.2And if you have too many payments every month, you might get behind on other financial goals such as building an emergency fund, taking a vacation, or adding to a retirement account.
One place to start? Try to make progress every month on reducing your debt. It takes a little organization up front, plus a strategy that fits your budget and your preferences. These steps can help—including three specific, practical strategies to pay down or pay off your debt:
Make a list of all your debt.
Before you start paying off debt, tally how much debt you have. Make a list with this information for each bill you owe.
The details you need to know about every debt:
- Debt name/account
- Type of debt (credit card, student loan, etc.)
- Balance
- Interest rate (some debt is more expensive, i.e., has a higher interest rate, than others)
- Payment terms/length
- Minimum monthly payment
Figure out the maximum you can pay every month.
Review your budget and answer these questions:
- How much do you need to pay for necessities such as rent/mortgage, insurance, utilities, and food?
- How much do you currently pay each month toward debt?
- Can you temporarily trim a few budget items to put even extra toward debt?
- Any extra income—tax refund, side hustle, things like that—to put more toward debt?
The 50/30/20 approach3 simplifies budgeting:
Trim from “wants” and a little from “needs” (i.e., a lower streaming bill) to come up with the total you can put toward debt repayment each month.
What’s the best way to pay off debt?
You can choose a debt repayment plan tailored to your unique circ*mstances— what’s best for you. In general, there are three strategies that can help you pay down or pay off your debt more efficiently.
| What it’s called | How it works | How you keep it going | Why some people like it |
|---|
| 1. The snowball method | Pay the smallest debt as fast as possible. Pay minimums on all other debt. | Then pay that extra toward the next largest debt. | A quick payoff is a quick win and can be a confidence booster. |
| 2. Debt avalanche | Pay the largest or highest interest rate debt as fast as possible. Pay minimums on all other debt. | Then pay that extra toward the next smallest debt. | Paying off a big debt can boost a feeling of control and gets rid of big interest, too. |
| 3. Debt consolidation | Combine debts into a single account. | Avoid any other debt until post-payoff | Possible lower interest and one account increases focus. |
Celebrate success and stay on top of future debt.
Sometimes debt can be good to help you build a credit score or accomplish goals—such as buying a house—that would be hard to do without a loan. But lots of extra debt can weigh down your credit score and add up to interest you didn’t want to pay. So celebrate every extra payment—and every debt payoff, too.
What's next?
As you manage your debt, talk to a financial professional about your long-term retirement savings strategy. If don’t already have a financial professional, we can help you find one.
FAQs
What's the best way to pay off debt?
- The snowball method. Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt. ...
- Debt avalanche. Pay the largest or highest interest rate debt as fast as possible. Pay minimums on all other debt. ...
- Debt consolidation.
Exceeding your minimum payments each month, targeting one debt at a time to pay off and consolidating debt held across different accounts are all strategies for reducing credit card debt.
How can I pay off my debt? ›
These strategies can help.
- Create a monthly budget. A monthly budget can help you accommodate your debt payments alongside your day-to-day spending. ...
- Make debt payments beyond the minimum. ...
- Establish an emergency savings fund. ...
- Keep an eye on your credit reports and scores.
If you're looking for practical ideas on how to get out of debt, consider the following tips.
- Create a budget plan. ...
- Pay more than your minimum balance. ...
- Pay in cash rather than by credit card. ...
- Sell unwanted items and cancel subscriptions. ...
- Remove your credit card information from online stores.
Pay off your most expensive loan first.
By paying it off first, you're reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost.
What are 2 ways to reduce the debt? ›
The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The former will save you more money over the long run, but the latter can help you keep momentum and see progress.
Which method is best to pay off debt the fastest? ›
The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off.
How to pay off debt fast with low income? ›
SHARE:
- Step 1: Stop taking on new debt.
- Step 2: Determine how much you owe.
- Step 3: Create a budget.
- Step 4: Pay off the smallest debts first.
- Step 5: Start tackling larger debts.
- Step 6: Look for ways to earn extra money.
- Step 7: Boost your credit scores.
- Step 8: Explore debt consolidation and debt relief options.
How To Pay Off Debt With Little To No Money: 9 Tips
- Calculate How Much Money You Owe. ...
- Avoid Taking On More Debt. ...
- Establish A Budget. ...
- Cut Areas Of Spending. ...
- Negotiate Existing Bills. ...
- Implement A Debt Repayment Strategy. ...
- Explore Side Hustles. ...
- Consider A Debt Consolidation Plan.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Contact your bank or credit union. If you have a checking or savings account, you have a relationship with a bank or credit union. They may be willing to offer a debt consolidation loan or a personal loan. Make sure that the interest is low enough to make sense.
How can I remove myself from debt? ›
A: Request a clearance certificate from your debt counsellor and submit it to the credit bureau. The credit bureau will then remove the debt review status from your credit report.
How do I get out of debt ASAP? ›
How to get out of debt
- List out your debt details.
- Adjust your budget.
- Try the debt snowball or avalanche method.
- Submit more than the minimum payment.
- Cut down interest by making biweekly payments.
- Attempt to negotiate and settle for less than you owe.
- Consider consolidating and refinancing your debt.
While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify.
How to pay off $20k in debt fast? ›
Use a debt consolidation loan
This allows you to make one monthly payment rather than paying multiple creditors. You may also get a better rate compared to your credit card APYs, saving you money in interest. A debt consolidation loan is especially useful if you are trying to pay off multiple credit cards.
What are 3 common ways Americans put themselves into debt? ›
U.S. Household Debt Is at an All-Time High
This includes mortgages, home equity revolving debt, auto loans, credit cards, student loans and other consumer lending such as retail cards. The total household debt of $17.3 trillion entering 2024 is a new high for the U.S.
What are three important tips for managing your debt? ›
Tips and Strategies for Managing Debt
- The Importance of Good Debt Management. ...
- Pay Bills When They Arrive. ...
- Prioritizing Debt Payments. ...
- Always Make the Minimum Payment to Avoid Fees. ...
- Create an Overview of Everything You Owe. ...
- Create an Emergency Fund to Avoid Unnecessary Debt. ...
- Pay What You Can Really Afford.
Three Steps to Managing and Getting Out of Debt
- Step 1: Stop Incurring Debt. The first step in managing debt is to stop incurring more debt. ...
- Step 2: Pay Off Debt. Make paying off debt a priority. ...
- Step 3: Use Caution. Be especially cautious when dealing with companies that offer to assist you with debt management.
