How to Pay Off Debt: 6 Strategies That Work

Brendan Harkness

Brendan Harkness

Updated Aug 28, 2019

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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 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, 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 to understand: Debt has a ripple effect across your entire financial life, including your credit scores.

Here are the two types we’ll discuss in this article:

Revolving debt comes from credit cards, where you can carry 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.

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 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.

Aside from that, 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 a high balance on your credit cards from month to month, it will have a negative effect on your credit — especially if you’re doing it with multiple cards.

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

Why Credit Card Debt Is So Dangerous

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

Credit card issuers can lure you in with a low introductory APR and gleaming credit line — but after that APR offer is over and your new credit card is maxed out, you may be staring into an overwhelming crevasse of debt.

That’s because credit card interest rates are often really high. So, if you’re just making the minimum payment each month, you’ll be paying off the card for a long time — and also paying 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 would take you almost 16 years to pay off your debt — and cost you nearly $7,000 extra in interest.

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 debts to manage. And in that situation, you need to find a method that appeals to 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 below, as well as alternatives like balance transfers, personal loans, and bankruptcy.

We recommend using the debt avalanche method, since it’s 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.

How to Pay Off Debt With the Avalanche Method

With this 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 that debt is paid off, start paying as much as you can on the account with the next highest interest rate. Continue like that until all your debts are paid.

Every time you pay off an account, you’ll have more money to put towards the next one. And since you’re tackling your debts in order of interest rate, you’ll pay less overall and be out of debt more quickly.

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

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:

  • Always pay the monthly minimum required payment for each account.
  • Put any extra money toward the account with the highest interest rate: the credit card.
  • Once the credit card debt is paid off, use the money you were putting towards it to vanquish the next highest interest rate: the personal loan.
  • Once the personal loan is paid off, take what you’ve been paying and add it to your payments for the student loan.
  • Once the student loan is paid off, take what you’ve been paying 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.

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.

How to 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.

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.

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 that debt is paid off, take the money you were putting toward it — and funnel it toward your next smallest debt instead. Continue like that until all your debts are paid.

In other words, 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.

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:

  • Always pay the monthly minimum required payment for each account.
  • Put any extra money towards the lowest balance: the personal loan.
  • 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.
  • Once the credit card is paid off, take what you’ve been paying and add it to your payments for the auto loan.
  • Once the auto loan is paid off, take what 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.

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.

The snowball method’s big downside is you’ll probably 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.

How to Pay Off Debt With Balance Transfers

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.

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 therefore spend less in interest over time. This is like paying off one credit card using another card.

This fits well with the avalanche method, since you can use a balance transfer to strategically reduce the interest rate on your highest-interest debt. That can buy you time to focus on the next-highest interest account, and reduce the total interest you pay.

Many balance transfer credit cards even offer a 0% APR for an introductory period, which allows you to pay off your 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 0% APR for the first year. If you pay off your debt in that period, you’d save more than $600 in interest.

Note: You’ll probably have to pay a balance transfer fee, so be sure to run the numbers and read the fine print before going this route. But a few credit cards offer 0% APR balance transfers for no fee.

If you’re carrying credit card debt at an interest rate and 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?

How to Pay Off Credit Card Debt With a Personal Loan

While paying off credit card debt outright is usually the smartest financial strategy, it can sometimes seem overwhelming.

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

The benefits of this route include:

  • It can help your credit scores: Because a personal loan is an installment loan, it doesn’t hurt your credit the way revolving loans (like credit cards) do. So paying off your credit card debt with an installment loan can significantly boost your credit, especially if you don’t already have any installment loans on your credit reports.
  • It can mitigate overload: Reducing the number of payments you need to make each month will make your life easier.
  • It can save you money: Personal loan interest rates are often lower than credit card interest rates, so you’ll end up paying less overall.

That being said, taking out a loan to pay off credit card debt can 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, as you’ll likely just end up further in debt.

If you do 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 and average age of accounts.
  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, or compare the options from online lenders. Here is a non-exhaustive list of online lenders you may want to consider (and we may earn a commission if you get a loan through one of these links):

How to Pay Off Debt With Debt Settlements

If you have outstanding debts to pay and can make a large one-time payment, settlement might be the right option for you.

Debt settlement is a negotiation in which a creditor, like a credit card company or collections agency, agrees to accept a partial payment rather than the full balance. You might be eligible if you’ve undergone hardships like job loss, medical problems, or divorce.

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.

If you choose to engage in debt settlement, you should do extensive research to avoid scammers and exorbitant fees. Learn what to watch out for at the FTC Consumer Information website.

How to 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.

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 considering bankruptcy, you must seek credit counseling.

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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