Strategies for Paying Off Debt

1. Get Clear About What Debt You Have

Debt has this sneaky way of creeping into your life and sticking around, making it feel like you’re in a hamster wheel—working hard but never getting anywhere. You’re not alone in feeling this way, and here’s the truth: Getting out of debt is possible, no matter how overwhelming it feels right now. Whether it’s the weight of student loans, high-interest credit card balances, or those nagging car payments, the first step to freedom is facing your debt head-on.

Think of it as starting a new fitness routine: You need to step on the scale to see where you’re at. It might not be fun, but it’s necessary to move forward. Facing your debt isn’t about shame—it’s about taking control of your financial story. Let’s look at two simple steps for getting clear about what debt you have.

Step 1: Get a Clear Picture

The first step to tackling your debt is getting crystal clear about what you owe. It’s time to lay it all out—every balance, big or small. Think of this as your financial reality check. Most of us either underestimate how much debt we have or don’t fully understand the details, like interest rates or payment terms. But don’t worry, this isn’t about judgment; it’s about taking control. The clearer you are, the stronger your plan will be—because clarity really is your superpower!

try it

Your turn! Try to create a listing (including a total) of your debts.

1. List Every Debt You Owe: Create a spreadsheet or grab a notebook. For each debt, write these down:

a. The lender or company (e.g., Chase, Sallie Mae, or Toyota Finance)

b. The current balance

c. The interest rate (this will be super important later)

d. The minimum monthly payment

2. This part can be tough, but it’s a game changer. Add up your balances to see your total debt. Knowing this number helps you create a plan to tackle it.

EXAMPLE

Here’s an example of what your debt list might look like:

• Credit Card 1: $5,000 at 20% interest, $150 minimum payment
• Credit Card 2: $3,000 at 18% interest, $90 minimum payment
• Student Loan: $20,000 at 6% interest, $200 minimum payment

When you total it up, your debt is $28,000. Seeing that number can feel overwhelming, but remember this is just the starting line, not the end of the story.

Step 2: Find Your “Why”

Getting out of debt isn’t just about the numbers—it’s about freedom. Why do you want to be debt-free? Is it to stop the late-night anxiety about money? To save for a house? To finally quit that job you hate and start your own business?

Your “why” is the thing that will keep you going when paying off debt feels hard. It’s your North Star, guiding you toward the life you want to create.

try it

Your turn to find your “why.”

• Write down your “why.” Be as specific as possible. Instead of saying, “I want to get out of debt,” say, “I want to get out of debt so I can finally start my bakery and stop worrying about money every month.”
• Post your “why” somewhere visible. Stick it on your bathroom mirror, your fridge, or your phone lock screen. You’ll need these reminders on tough days.

EXAMPLE

“I want to be debt-free so I can save for a down payment on a house and give my kids the stability I never had growing up.”

Now that you’ve taken the brave step of listing your debts and understanding exactly where you stand, give yourself a moment to breathe. Yes, seeing the total might feel overwhelming, but remember this is the first step toward changing your financial future. You now have the clarity and knowledge you need to move forward.

The next step is all about action. Knowing your debt is one thing, but tackling it with a plan that fits your personality and situation is where the magic happens. You don’t need to wing it or guess your way through—you can use proven debt payoff strategies to build momentum and crush those balances one by one. Let’s talk about them.

2. Debt Payoff Methods

hint

Debt isn’t something you conquer overnight, but with the right strategy, you can start to see real progress—and feel the weight lifting off your shoulders. The good news is that there’s no one-size-fits-all approach. Whether you’re motivated by quick wins or focused on saving money in the long run, there’s a method that can work for you.

We’re going to dive into two of the most effective debt payoff strategies: the snowball method and the avalanche method. Both are designed to help you pay off debt in a structured, manageable way, but they take slightly different approaches. By understanding how they work, you’ll be able to choose the one that fits your goals and keeps you motivated.

Ready to find your path to debt freedom? Let’s explore each method in detail.

2a. The Snowball Method

The snowball method focuses on building confidence by tackling your smallest debts first. Think of it as rolling a tiny snowball down a hill—it starts small, but as it picks up speed, it grows bigger and stronger.

How It Works

1. List your debts from the smallest balance to the largest. Don’t worry about the interest rates yet—this method is all about momentum.
2. Pay the minimum on all your debts except the smallest one.
3. Throw every extra dollar you can find at the smallest debt until it’s gone. Hint: It’s time to go back to your personal budget and find any extra money each month that you can allocate to your snowball method strategy.
4. Once the smallest debt is paid off, take the amount you were paying and roll it into the next smallest debt.
5. Repeat until you’re debt-free.

EXAMPLE

For this example, let’s say you have the following debts:

• Credit Card 2: $3,000 balance, $90 minimum payment
• Credit Card 1: $5,000 balance, $150 minimum payment
• Student Loan: $20,000 balance, $200 minimum payment

Here’s how the snowball method works for this example:

1. Start with Credit Card 2 because it has the smallest balance. Say, you can budget $400/month for debt. Pay $400 toward Credit Card 2 while paying only the minimums on the other debts. In 8 months, Credit Card 2 is gone!
2. Now, take that $400 and add it to the $150 minimum payment on Credit Card 1. You’re now paying $550/month on Credit Card 1. In about 9 months, that’s paid off, too.
3. Finally, roll the $550 into the $200 minimum payment for your student loan, for a total of $750/month. With this larger payment, you’ll tackle your student loan in just over 2 years.

The snowball method is effective because it provides quick wins that give you instant gratification. When you pay off a small debt, it feels like a huge accomplishment, and that sense of victory helps you build momentum to tackle the next debt. Each debt you pay off becomes a confidence boost, reminding you that progress is possible. This approach keeps your motivation high and makes the process feel manageable, even when the total debt feels overwhelming.

Potential Drawbacks

The main downside to the snowball method is that you might pay more in interest over time. Since this strategy focuses on the smallest balances rather than the highest interest rates, you’re not necessarily eliminating the most expensive debts first. However, the tradeoff is often worth it if staying motivated is your biggest challenge.

Who It’s Best For

The snowball method is ideal for people who feel overwhelmed by debt and need emotional wins to stay motivated. If you’re someone who loves the satisfaction of crossing things off a to-do list or seeing quick results, this method can help you stay focused and energized throughout your debt payoff journey.

Now that you’re a pro at the snowball method, let’s talk about the second debt payoff strategy, the avalanche method.

term to know

The Snowball Method

A debt payoff strategy where you focus on paying off your smallest debt first while making minimum payments on all others.

2b. The Avalanche Method

The avalanche method is for people who love efficiency and want to minimize the total cost of their debt. Instead of focusing on balances like the snowball method, this method prioritizes high-interest debts.

How It Works

1. List your debts from highest interest rate to lowest.
2. Pay the minimum on all your debts except the one with the highest interest rate.
3. Put all your extra money toward the highest-interest debt until it’s gone.
4. Once that debt is paid off, move to the next highest-interest debt.
5. Repeat until you’re debt-free.

EXAMPLE

For this example, let’s revisit the debts from the previous example, organized by interest rate:

• Credit Card 1: $5,000 at 20% interest, $150 minimum payment
• Credit Card 2: $3,000 at 18% interest, $90 minimum payment
• Student Loan: $20,000 at 6% interest, $200 minimum payment

Here’s how the avalanche method works for this example:

1. Start with Credit Card 1 because it has the highest interest rate. If you can budget $400/month, pay $400 toward Credit Card 1 while paying the minimums on the others. In 14 months, Credit Card 1 is gone.
2. Next, roll the $400 into the $90 minimum payment for Credit Card 2. Now, you’re paying $490/month. In about 6 months, Credit Card 2 is paid off.
3. Finally, roll the $490 into the $200 minimum payment for your student loan, for a total of $690/month. With this larger payment, you’ll pay off the student loan in about 3 years.

The avalanche method is highly effective because it saves you the most money over time. By focusing on the debts with the highest interest rates first, you reduce the total amount you’ll pay in interest. This makes it the most mathematically efficient way to pay off debt, ensuring that every extra dollar you put toward your balances works harder for you.

Potential Drawbacks

One challenge with the avalanche method is that progress can feel slower, especially if your highest-interest debt has a large balance. It might take longer to pay off your first debt, which can be discouraging if you thrive on immediate results. Without quick wins, there’s also a risk of losing motivation before you see the payoff.

Who It’s Best For

The avalanche method is perfect for people who are focused on saving as much money as possible in the long run. It’s also a great fit for those who are comfortable with delayed gratification and are motivated by the bigger picture rather than immediate results.

Now that you have an understanding of both methods, let’s look closer at which method you should choose. Remember, there isn’t a right or wrong method, only the method that will work best for you and keep you motivated while you’re paying off debt.

term to know

The Avalanche Method

A debt payoff strategy where you focus on paying off the debt with the highest interest rate first while making minimum payments on all others.

3. Which Method You Should Use

You’ve learned about the two payoff methods; the next big question is which method you should use. Choosing the right debt payoff method comes down to understanding what drives you and keeps you motivated.

Both the snowball method and the avalanche method are effective in their own ways, but their success depends on how well they fit your personality and financial goals.

Do you thrive on the excitement of quick wins and need those small victories to stay energized?

Or are you more focused on long-term efficiency and saving as much money as possible, even if progress feels slower at first?

Let’s explore how to make this decision and set yourself up for success.

hint

If you’re unsure, start with the snowball method to build confidence. Once you’ve knocked out a few smaller debts, consider switching to the avalanche method for maximum savings.

Your debt payoff strategy should match your unique financial reality. Whether you’re struggling to make ends meet or have some extra cash to throw at your balances, there’s a plan that works for you.

Here are three common scenarios and strategies to help you decide:

• Scenario 1: “I’m Barely Making Ends Meet”
  • Strategies: Negotiate lower interest rates, sell unused items, or start small—even $10/month extra helps.
  • Example: Free up $50/month by canceling unused subscriptions and apply it to your smallest debt using the snowball method.

• Scenario 2: “I Have a Little Extra to Work With”
  • Strategies: Cut back on nonessentials like dining out, automate extra payments, and use windfalls like tax refunds.
  • Example: Save $200/month by reducing takeout and use it to pay off a $3,000 credit card in 14 months instead of 36 using the snowball method.

• Scenario 3: “I’m Comfortable But Want to Be Debt-Free Faster”
  • Strategies: Aggressively target high-interest debt with the avalanche method, refinance loans, and set a clear debt-free deadline.
  • Example: Increase your student loan payment from $250 to $600/month and save over $4,000 in interest, becoming debt-free in 3 years instead of 9.

big idea

Tackling debt is about more than just numbers—it’s about taking control of your financial future. By choosing a method that works for you, staying focused on your “why,” and tailoring your strategy to your current situation, you’ll set yourself up for success. Take it one step at a time and remember: Every dollar you pay brings you closer to freedom. You’ve got this!