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How to Pay Off Debt: 6 Strategies That Work

14 min read
By Brendan Harkness
Expert reviewed by Michelle Black
Updated Jan 08, 2021
At a glance

Debt can feel overwhelming, especially when you have debt on multiple credit cards. With these strategies you can take control, to know you’re making progress in paying off your debt and save money on interest.

In more ways than one, debt can be a four-letter word.

When it gets out of control — whether from medical bills, shopping sprees, or unexpected emergencies — it becomes an albatross that affects your emotional and physical health.

Although it might feel overwhelming, you can tackle any debt the same way: one step at a time. Here’s a guide on how to pay off debt — and how to pay off credit card debt, in particular — even when it seems impossible.

Start by learning what debt can do to your credit rating, and why credit card debt can be particularly damaging. Or jump to our favorite debt payoff method, the debt avalanche.

How Debt Affects Your Credit Scores

The first thing you should understand is that debt has a ripple effect across your entire financial life, including your credit scores.

In this article we’ll discuss two types of debt — revolving and installment.

Revolving debt primarily comes from credit cards where you can carry, or revolve, a balance from month to month. You can borrow as much money as you’d like — up to a predetermined credit limit — and interest rates are subject to change. Your monthly payment may vary on revolving debt depending upon how much you currently owe.

Installment debt comes from mortgages, car loans, student loans, and personal loans. In most cases, the amount of money you borrow, the interest rate, and the size of your monthly payments are fixed at the start.

With both types of debt, you must make payments on time. When you miss a payment, your lender could report it to the credit bureaus — a mistake that can stay on your credit reports for seven years. You may also have to pay late fees, which won’t impact your credit scores, but can be burdensome nonetheless.

Aside from your payment history, the way each type of debt affects your credit is quite different. With installment debt, like student loans and mortgages, having a high balance doesn’t have a big impact on your credit.

But revolving debt is another matter. If you carry high balances compared to your credit limits on your credit cards from month to month, it will likely have a negative effect on your credit scores — especially if you’re doing it with multiple cards.

Your credit can be negatively affected because the percentage of available credit you’re using — also known as your credit utilization — carries significant weight in calculating your credit scores. To maintain good credit, you should keep your balances as low as possible on your credit cards. Ideally, you should pay off the full statement balances each month.

Why Credit Card Debt Is So Dangerous

When it comes to debt, credit card debt is often the most nefarious.

Credit card issuers can lure you in with a low introductory APR and gleaming credit line. But that introductory APR offer will eventually expire. When it does, you can find yourself staring at an overwhelming pile of debt if you didn’t manage your new credit card account the right way.

The reason revolving debt can be so overwhelming is because credit card interest rates are typically really high. So, if you’re just making the minimum payment each month, it will take you a long time to pay off your balance — possibly decades. During that time, you’ll also pay a lot of interest.

Let’s say you charge $8,000 on a credit card with 17% APR, and then put it in a drawer, never spending another cent. If you make only the minimum payment on that bill each month, it could take you almost 16 years to pay off your debt — and cost you nearly $7,000 extra in interest (depending on the terms of your agreement).

6 Ways to Pay Off Debt on Multiple Cards

Ready to pay off your debt? The first step is to create a debt payoff plan.

If you only have one debt, your strategy is simple: make the biggest monthly debt payment you can handle. Rinse and repeat, until it’s all gone.

But if you’re like most people in debt, you have multiple accounts to manage. In that situation, you need to find the debt elimination method that works best for you.

Many people turn to the strategies often exhorted by financial guru Dave Ramsey — the debt snowball and the debt avalanche. We’ll explain both of those approaches below, as well as alternatives like balance transfers, personal loans, and bankruptcy.

We recommend using the debt avalanche method since it’s the best way to pay off multiple credit cards when you want to reduce the amount of interest you pay. But if that strategy isn’t right for you, there are several others you can consider.

  1. Avalanche Method
  2. Snowball Method
  3. Balance Transfers
  4. Personal Loans
  5. Debt Settlement
  6. Bankruptcy

1 — How Do I Pay Off Debt With the Avalanche Method?

With this debt elimination strategy, also known as debt stacking, you’ll pay off your accounts in order from the highest interest rate to the lowest. Here’s how it works:

  • Step 1: Make the minimum payment on all of your accounts.
  • Step 2: Put as much extra money as possible toward the account with the highest interest rate.
  • Step 3: Once the debt with the highest interest is paid off, start paying as much as you can on the account with the next highest interest rate. Continue the process until all your debts are paid.

Every time you pay off an account, you’ll free up more money each month to put towards the next debt. And since you’re tackling your debts in order of interest rate, you’ll pay less overall and get out of debt faster.

Like an avalanche, it might take a while before you see anything happen. But after you gain some momentum, your debts (and the amount of interest you’re paying on them) will fall away like a rushing wall of snow.

Example of the Debt Avalanche in Action

Let’s say you have four different debts:

Type of Debt Balance Interest Rate (APR)
Auto Loan $15,000 4.5%
Credit Card $7,000 22.0%
Student Loan $25,000 5.5%
Personal Loan $5,000 10.0%

To use the debt avalanche method:

  1. Order the debts, from highest interest rate to lowest.
  2. Always pay the monthly minimum required payment for each account.
  3. Put any extra money toward the account with the highest interest rate — in this case, the credit card.
  4. Once the credit card debt is paid off, use the money you were putting towards it to chip away at the next highest interest rate — the personal loan.
  5. Once the personal loan is paid off, take what you’ve been paying and add that amount to your payments for the student loan debt.
  6. Once the student loan is paid off, take the money you’ve been paying toward other debts and add it to your payments for the auto loan.

So, you’ll end up paying off your accounts in this order:

  1. Credit Card ($7,000)
  2. Personal Loan ($5,000)
  3. Student Loan ($25,000)
  4. Auto Loan ($15,000)

Pros and Cons of the Debt Avalanche

The debt avalanche will help you pay less in interest and will get you out of debt more quickly. You’ll also have the satisfaction of seeing the highest interest rates disappear first.

That’s why the debt avalanche is our recommended method for paying off debt.

The downside? It’ll generally take longer to see progress than with the debt snowball. So if you’re counting on some small wins to get you motivated, the next method may be a better fit for you.

2 — How Do I Pay Off Debt With the Snowball Method?

With the debt snowball, you’ll pay off your debts in order from the smallest balance to the largest. Here’s how it works:

  • Step 1: Make the minimum payment on all of your accounts.
  • Step 2: Put as much extra money as possible toward the account with the smallest balance.
  • Step 3: Once the smallest debt is paid off, take the money you were putting toward it and funnel it toward your next smallest debt instead. Continue the process until all your debts are paid.

Many people love this method because it includes a series of small successes at the beginning — which will give you more motivation to pay off the rest of your debt. There’s also the potential to improve your credit scores more quickly with the debt snowball method, as you lower your credit utilization on individual credit cards sooner and reduce your number of accounts with outstanding balances.

With this approach, you take aim at your smallest balance first, regardless of interest rates. Once that’s paid off, you focus on the account with the next smallest balance.

Think of a snowball rolling along the ground: As it gets bigger, it can pick up more and more snow. Each conquered balance gives you more money to help pay off the next one more quickly. When you pay off your smallest debts first, those paid-off accounts build up your motivation to keep paying off debt.

Plus, the debt snowball method might quickly have a positive impact on your credit scores (especially if you eliminate credit card debt first). Better credit can save you money in other areas of your life as well.

Example of the Debt Snowball in Action

Let’s take the same accounts we used in the first example.

Type of Debt Balance Interest Rate (APR)
Auto Loan $15,000 4.5%
Credit Card $7,000 22.0%
Student Loan $25,000 5.5%
Personal Loan $5,000 10.0%

To use the debt snowball method:

  1. Order the debts, from lowest balance to highest.
  2. Always pay the monthly minimum required payment for each account.
  3. Put any extra money towards the lowest balance — the personal loan.
  4. Once the personal loan is paid off, use the money you were putting towards it to vanquish the next smallest balance — the credit card debt.
  5. Once the credit card is paid off, take the money you’ve been paying and add it to your payments for the auto loan.
  6. Once the auto loan is paid off, take the money you’ve been paying and add it to your payments for the student loan.

Using the debt snowball method, you’ll end up paying off your accounts in this order:

  1. Personal Loan ($5,000)
  2. Credit Card ($7,000)
  3. Auto Loan ($15,000)
  4. Student Loan ($25,000)

Pros and Cons of the Debt Snowball

The debt snowball can be a good fit if you have several small debts to pay off — or if you need motivation to pay off a lot of debt. It might also be a good approach if you owe outstanding balances on multiple credit cards but can’t qualify for a new balance transfer credit card or low-interest personal loan to consolidate your revolving debt.

When you’re facing an overwhelming amount of debt, this method lets you see progress as quickly as possible. By getting rid of the smallest, easiest balance first, you can get that account out of your mind.

Reducing the number of accounts with outstanding balances on your credit reports might help your credit scores too.

The snowball method’s big downside is you’ll typically end up paying more over time compared to the avalanche method. Since you don’t take interest rates into account, you could end up paying off higher-interest accounts later. That extra time will cost you more in interest fees.

Insider tip

While the debt snowball and avalanche are two overarching strategies for how to pay off debt, here are some specific techniques you can use in conjunction with them.

3 — How Do I Pay Off Debt With Balance Transfers?

When you have credit card debt, one option is to transfer your credit card balance to a different card.

If you have an account with a high interest rate, for example, you can transfer its balance to a card with a lower interest rate and spend less money on interest over time. This is like paying off one credit card using another card.

  • Step 1: Identify the credit cards where you’re paying interest on a balance.
  • Step 2: Decide how much money you can or want to transfer.
  • Step 3: Apply for a new balance transfer credit card, offering 0% APR on balance transfers for a set amount of time (or find a balance transfer offer on a card you already have).
  • Step 4: Transfer the balance, or balances, from the older cards to the new card.
  • Step 5: Pay off your balance on the new card; try to pay it all off before the 0% period ends.

After performing a balance transfer you’ll open up the credit lines of those cards — but don’t use your newly available credit to rack up more debt.

A lower-rate balance transfer card can fit well with the avalanche method. Since you can use a balance transfer to strategically reduce the interest rate on your highest-interest debt, it can buy you time to focus on the next-highest interest account. This can reduce the total interest you pay.

Many balance transfer credit cards even offer a 0% APR for an introductory period (often 6–18 months). A 0% APR offer allows you a chance to pay off your credit card balance without incurring extra interest charges.

Say you have $6,000 of credit card debt at an 18% APR. You could transfer that balance to a card that offers a 0% APR for 12 months. If you pay off your debt in that period, you’d save more than $600 in interest.

Insider tip

According to 2020 Credit Card Insider survey results, 78% of U.S. adults who’ve conducted balance transfers agree that they were helpful. Though not for everyone, balance transfers are a useful solution if you can stick to a rigid payoff schedule.

Note: You’ll probably have to pay a balance transfer fee, so be sure to run the numbers and read the fine print up front. But a few credit cards offer 0% APR balance transfers and charge no balance transfer fees.

If you have at least decent credit, you may be able to qualify for a good balance transfer deal. Save some money by checking out our picks for the best balance transfer cards.

Q&A Video: What Is a Balance Transfer Offer? Is it a Good Idea?

4 — How Do I Pay Off Credit Card Debt With a Personal Loan?

Paying off credit card debt outright is usually the smartest financial strategy. Yet, if you’re in so much credit card debt that you can’t afford to simply write a big check and the debt avalanche method seems too overwhelming or slow to manage, it might be time to consider an alternative approach.

In situations where you have several different cards (and statements, and due dates), paying them off with a low-rate personal loan can be a good idea.

  • Step 1: Do some research into different loan providers (see the tool below), and find out the rates you’re likely to get and the fees involved. If you’ll get a lower rate than you’re paying now, and you’ll pay less in fees, a consolidation loan could be a good idea.
  • Step 2: Apply for a personal loan from your provider of choice. You may have to submit credit card information so the loan provider can pay your card issuers directly. In some cases they’ll transfer the money to your bank account, and then you need to pay off your cards yourself.
  • Step 3: Pay off the personal loan according to its terms. If you can pay more than the required amount each month, that’ll get you out of debt faster and save you money.

The benefits of this route include:

  • Consolidating credit card debt with a personal loan may help your credit scores: Because a personal loan is an installment loan, its balance-to-limit ratio doesn’t hurt your credit the way revolving accounts (like credit cards) may. So, paying off your credit card debt with an installment loan could significantly boost your credit, especially if you don’t already have any installment loans on your credit reports.
  • A personal loan can mitigate overload: When you use a personal loan to reduce the number of payments you need to make each month, it can make managing your debts much easier.
  • Paying off credit card debt with a low-rate personal loan can save you money: Personal loan interest rates are often lower than credit card interest rates. If you qualify for an installment loan with a lower rate, you’ll end up paying less money overall.

That being said, taking out a loan to pay off credit card debt can also be dangerous. Follow the terms of the loan carefully, or you could just make your situation worse. Avoid this route if you don’t trust yourself to use credit responsibly. Otherwise, you could end up further in debt.

If you use this strategy, remember these key points:

  1. Keep credit cards open: Don’t close the credit cards you pay off, unless they have annual fees you don’t want to pay. Keep them open to help your credit utilization.
  2. Cut back on credit card spending: Don’t spend any more money on your paid-off credit cards. If you must, hide them or cut them up.
  3. Be a responsible borrower: Make regular, punctual payments on your installment loan. If you don’t, you’ll just create more problems for your credit.

Where to Get a Personal Loan

There are many places to look for personal loans with a wide variety of rates depending on the lender and your credit history. You may want to check with local banks and credit unions where you already have an account. Want to compare some options? You can use this comparison tool below.

Keep in mind we have not vetted all the providers that show up in this comparison tool as they are constantly changing, and we may receive an affiliate commission if you get a loan through one of these services.

Here is a non-exhaustive list of other online lenders you may want to consider (and we may earn a commission if you get a loan through one of these links):

There are also more comprehensive services, like Debt.com, that will guide you through the process and help you determine whether debt consolidation, credit counseling, bankruptcy, or other options are the best fit for you, but this will likely come with additional fees for things you could likely do yourself.

Learn More

How Personal Loans Impact Credit Scores

A personal loan can impact your credit scores in several ways. Whether the account ultimately hurts or helps you depends on two primary factors — how you manage the account and the rest of the information on your credit reports.

  1. The application might hurt your scores. When you apply for credit, an inquiry is added to your credit reports. Some credit inquiries may damage your scores for 12 months (though the impact is generally minor).
  2. Your scores might increase as your personal loan ages. At first, a new account might reduce your average age of credit and negatively affect your scores. As your personal loan grows older, it could help those numbers.
  3. A personal loan could lower your credit utilization. Personal loans are installment loans, which don’t impact your revolving utilization ratio at all. You can have a high balance on a personal loan, and it will have little to no impact on your scores. If you pay off credit cards with a personal loan, your revolving utilization ratio should decrease, and your scores may improve.
  4. Your credit mixture might improve with a personal loan. Scoring models reward you for having a diverse mixture of accounts on your credit reports. If you don’t have any installment loans on your reports, adding a personal loan might help your scores.

Often, a personal loan has the potential to help you from a credit score perspective. Just be sure you make every payment on time. If you open a personal loan and pay it late, it could damage your scores significantly.

5 — How Do I Pay Off Debt With Debt Settlement?

Debt settlement is another option you can consider when you’re ready to eliminate your credit card debt. This strategy usually works best for people who (a) are already past-due on their credit card payments and (b) can afford to make large, one-time settlement payments to their creditors.

You can settle debts on your own or you can hire a professional debt settlement company to handle the process for you. If you choose to hire an outside party, you should do extensive research to avoid scammers and exorbitant fees. Be aware that hiring a company to do this is not necessary, and could end up costing you a lot more money. Learn what to watch out for at the FTC Consumer Information website.

  • Step 1: Examine your debts, and determine your ability to repay them over time.
  • Step 2: If you think your debts are insurmountable, and you’ve decided bankruptcy isn’t the right response, you can either attempt debt settlement yourself or hire a company. The worse your situation (i.e., more late payments or delinquencies) the more leverage you might have, because your creditors will see that they’re less likely to be paid in full.

If you go the DIY route:

  • Step 3: Contact each creditor and tell them you’re willing to settle your debt for less than the current balance. Keep your first offer low. It can be helpful to save up some money beforehand, so you’ll be in a better bargaining position.
  • Step 4: Be prepared for some back and forth with your creditors. The process can take some time. Don’t be afraid to hang up (politely) and try back later.
  • Step 5: When you reach a settlement agreement you can afford, get the offer in writing. Don’t share any bank account or payment information until you have the agreement in hand.
  • Step 6: Pay off your settled debt, ideally for much less than the original balance.

Or, if you prefer to work with a debt settlement company:

  • Step 3: Research some debt settlement companies, and put together a short list.
  • Step 4: Contact each company and inquire about their general process, the expected timeline, and how much they charge (you may find vast differences in price).
  • Step 5: When you find the company that’s best for you and set up an agreement, they’ll tell you what to do from there. The settlement company will usually handle all communications with your creditors, although you’ll probably need to suffer through inquiring phone calls and letters from those creditors for some time.
  • Step 6: The debt settlement company may ask you to stop making payments to your creditors, and instead make payments into an escrow account. The escrow account will later be used to pay off your creditors, after they agree to settle for less than the balance.
  • Step 7: When the debt settlement company gets a good offer, it will use the funds in the escrow account to pay off your creditor, ideally for much less than the original balance.

Debt settlement is a negotiation in which a creditor, like a credit card company or collections agency, agrees to accept a partial payment to satisfy your credit card debt rather than the full balance. You might be eligible if you’ve undergone hardships like job loss, medical problems, or divorce. However, some creditors will consider settling debts even if you don’t have any special extenuating circumstances.

This option usually only becomes available after it’s become clear that you’ve been struggling to pay your bills, like if you’ve started to accrue late payments or haven’t been paying at all.

When you settle your debt, you can sometimes pay 50% or less of the original balance. You may, however, have to pay taxes on the forgiven amount.

6 — How Do I Pay Off Debt With Bankruptcy?

When you’ve reached your limits and have nowhere else to turn, bankruptcy can offer a fresh start. You should only use it as a last resort, however, because bankruptcy can devastate your credit.

Bankruptcy can’t be encompassed in a few short steps, but the general process is:

  • Step 1: Examine your debts, and determine your ability to repay them over time.
  • Step 2: If you think your debts are insurmountable, and you’ve decided bankruptcy might be the right response, research bankruptcy attorneys in your area.
  • Step 3: When you find the right attorney, he or she will instruct you on what to do. You’ll need to submit comprehensive documentation of your debts, credit cards, loans, bank accounts, and other financial products, along with information about your assets and personal property. And more!
  • Step 4: The attorney will collect your information and file the bankruptcy with the proper authorities.
  • Step 5: If filing a Chapter 13 bankruptcy, you’ll need to make monthly payments for a period of 3–5 years.
  • Step 6: When the bankruptcy is discharged, the included debts will be written off by the creditors, and you’ll no longer be responsible for them. Depending on the type of bankruptcy, it could be discharged within 3–4 months of filing (Chapter 7) or 3–5 years (Chapter 13).

There are two types of personal bankruptcy:

  • Chapter 7, which often requires you to surrender some of your property
  • Chapter 13, which allows you to keep your property

Declaring either type of bankruptcy can be a long, expensive process — including attorney and court filing fees — and you shouldn’t take it lightly. Before filing bankruptcy, you must also seek credit counseling approved by the department of justice. Although you can conduct the process yourself, it’s best to get an attorney.

Read more 4 Best Credit Cards to Get After Bankruptcy

Q&A Video: Is There Anything Worse Than Bankruptcy?


When you’re swimming in red-letter bills and harassing phone calls, it can often feel like there’s no way out. But by using the strategies above, you can eventually free yourself from the shackles of debt.

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