Step 1: Know What You Owe
Before creating a payoff plan, list all your debts:
- Creditor name
- Total balance
- Interest rate (APR)
- Minimum monthly payment
Seeing the full picture can be scary, but it's essential for creating an effective plan.
Choose Your Strategy
Debt Avalanche
Pay highest interest first
- Pay minimums on all debts
- Put extra money toward highest APR debt
- When paid off, move to next highest APR
- Repeat until debt-free
Pro: Saves the most money on interest
Con: May take longer to see first debt paid off
Debt Snowball
Pay smallest balance first
- Pay minimums on all debts
- Put extra money toward smallest balance
- When paid off, move to next smallest
- Repeat until debt-free
Pro: Quick wins boost motivation
Con: May pay more interest overall
Which is better? Mathematically, avalanche saves more money. Psychologically, snowball's quick wins keep people motivated. Choose what you'll actually stick with.
Tactics to Speed Up Payoff
Balance Transfer
Move high-interest debt to a 0% APR card. All your payment goes to principal instead of interest.
Watch for transfer fees (usually 3-5%) and pay off before the promo rate ends.
Debt Consolidation Loan
Combine multiple debts into one lower-interest loan. Simplifies payments and can reduce interest.
Bi-Weekly Payments
Pay half your monthly payment every two weeks. You'll make 26 half-payments (13 full payments) per year instead of 12.
Round Up Payments
Round your payment up to the nearest $50 or $100. Small amounts add up over time.
Find Extra Money to Pay Down Debt
- Cut subscriptions: Cancel unused services
- Sell unused items: Declutter and make money
- Side gig: Put all extra income toward debt
- Tax refund: Apply it directly to debt
- Raise income: Ask for a raise, pick up shifts
- Reduce expenses: Temporary sacrifices for faster payoff
Avoid These Mistakes
- Paying only minimums: You'll pay mostly interest and stay in debt for years
- Closing paid-off cards: This hurts your credit utilization ratio
- No emergency fund: Without savings, emergencies go back on credit cards
- Continuing to use credit: Stop adding new debt while paying off old
- Ignoring high-interest debt: Tackle it first to stop the bleeding
Stay Motivated
- Track your progress visually (debt payoff chart)
- Celebrate milestones (within reason)
- Calculate how much interest you're saving
- Imagine life without payments
- Find accountability (friend, online community)