Debt Consolidation

How to Pay Off Your Debt With These 5 Strategies

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Debt can be annoying and stressful. If you’ve got debt, you may have to miss out from a night out with friends to a pricey dental procedure. Because debt takes up a chunk of your income each and every month, it limits your financial options.

But you have options for dealing with your debt. If you’re wondering how to pay off debt, these are the strategies and tactics you can do to get rid of debt.

5 strategies to pay off debt

Debt repayment strategy How it works Pros Cons
Debt avalanche You’ll make the minimum payment on all but your debt with the highest interest rate. You’ll make extra payments on that debt. Once it’s repaid, you’ll move onto the debt with the next highest rate.
  • Eliminates your costliest debt first.
  • Saves money in the long run.
  • Interest charges may grow on other debts.
  • Won’t lower interest rates or fees.
Debt snowball You’ll make the minimum payment on all your debt except the one with the lowest balance. You’ll make extra payments on that debt. Once it’s repaid, you’ll put extra money toward the next smallest debt.
  • See progress quickly, which can keep you motivated.
  • Your credit score is likely to rise as you pay off credit card debt.
  • May pay more in interest overall compared to other strategies.
  • Won’t lower interest rates or fees.
Debt consolidation You’ll combine existing debts with a new loan, ideally with a lower interest rate.
  • Simplifies debt repayment.
  • May pay less in interest and fees compared with other debt repayment methods.
  • Don’t get the emotional benefit of frequent debt payoff milestones.
  • Best for borrowers with strong credit.
Debt management plan You’ll work with a credit counseling agency and make monthly deposits into a bank account. The agency will negotiate with creditors and make payments on your behalf.
  • Simplifies debt repayment.
  • May see lower interest rates and pay less overall.
  • Your access to credit will be limited.
  • You’ll pay a setup fee and maintenance fees.
Debt settlement You’ll make a lump-sum payment that’s less than the full amount that you owe, in exchange for a creditor resolving your debt.
  • You may resolve debts for less than you owe.
  • May allow you to avoid bankruptcy.
  • Credit score will drop.
  • Some lenders won’t be willing to settle debts.

1. Debt avalanche

A debt avalanche method helps lower your overall cost for borrowing by minimizing how much interest you pay. Under this repayment method, you’ll make the minimum payment on all your debts except the one with the highest interest rate. For that debt, you’ll put any extra money you have toward paying it down.

When you’ve eliminated your highest interest rate debt, you’ll put your extra funds toward the loan with the next highest rate.

2. Debt snowball

The goal of a debt snowball is to keep you psychologically motivated by rewarding you with quick wins. With a debt snowball, you pay the minimum on all your debts except the one with the smallest balance. You’ll focus on eliminating that balance first. Once it’s repaid, you’ll put the minimum payment from the smallest debt plus any extra money toward the next smallest debt.

Although a debt snowball won’t necessarily reduce your total amount paid like a debt avalanche, you benefit from having small wins along your repayment journey. That can keep you motivated as you work toward becoming debt-free.

3. Debt consolidation

Debt consolidation is when you take out a new loan to roll existing debts into one, ideally with a lower interest rate. By combining multiple debts with a lower interest rate, you can reduce your total cost of repayment.

Two common ways you can consolidate debt is with a debt consolidation loan — which is a personal loan — and a balance transfer credit card.

  • Debt consolidation loans allow you to roll existing debts into a single unsecured personal loan. The new loan should have a lower interest rate to make repayment more affordable. Debt consolidation loans have fixed monthly payments with a set repayment term you choose. (A shorter term will minimize your cost of repayment, while a longer term will lower monthly payments in exchange for a higher overall cost of borrowing.)
  • Balance transfer credit cards offer a low introductory APR for up to 18 months for new customers. These allow you to transfer existing credit card debt onto them so you may repay your debt for less. However, you’ll have to pay an upfront balance transfer fee of 2%-5%, and if you don’t repay your balance in full before the introductory period ends, you may be hit with deferred interest. Because a balance transfer frees up credit on your old credit cards, beware charging up additional debt.

Aside from potentially lowering your overall cost of repayment, one benefit of debt consolidation is that it allows you to bring delinquent accounts current. This can be beneficial by reducing the damage to your credit and stop your debt from going to collections.

4. Debt management plan

Under a debt management plan, you’ll work with a credit counseling agency to repay your debt, usually over 48 months or longer. In addition to paying a setup fee and monthly fee, you’ll make deposits each payday into a dedicated bank account. The agency will arrange payments for you and work with your creditors to potentially lower your interest rate or have late fees waived.

Debt management fees vary by agency, your state and the amount of debt. For example, GreenPath Financial Wellness charges a $0 to $50 setup fee and a $0 to $75 monthly fee. As part of your plan, you’ll be asked to close some, if not all, of your credit card accounts. This may hurt your credit in the short term.

To find a reputable credit counseling agency, start your search with the National Foundation for Credit Counseling. It offers a database of nonprofit member agencies that provides financial counseling.

5. Debt settlement

If you’re overwhelmed by debt, you may be able to settle your debt. That means you resolve debts by paying your creditors an agreed-upon lump sum, which may be a small percentage of what you owe.

You may choose to work with a debt settlement company to resolve your debts. When you work with a debt settlement company, you’ll deposit money into a dedicated bank account. The company will use those funds to potentially settle your debt. You may be expected to make payments to this account for three years or longer, which can be difficult when you’re struggling financially. That means that the dropout rate for debt settlement plans are high.

However, debt settlement is risky:

  • Debt settlement programs involve not paying your current debts, which negatively impacts your credit score.
  • Many debt settlement companies are scams and fail to deliver on results that they promise.
  • Even legitimate debt settlement companies charge high fees. These fees are typically a percentage of the settled debt amount.
  • There’s no guarantee lenders will agree to settle your debt.

If debt settlement still seems like your best option, you may want to consult a debt settlement attorney. They can let you know whether you are a good candidate for settlement. They can also help you compare debt settlement to other repayment options.

8 things you can do to tackle your debt today

  1. Get organized
  2. Choose a strategy to get out of debt
  3. Identify and correct overspending habits
  4. Seek ways to boost your income
  5. Ask for a lower interest rate
  6. Use autopay to keep yourself on track
  7. Make biweekly payments
  8. Use windfalls to accelerate debt repayment

1. Get organized

Getting organized is the first step in any sustainable debt repayment plan. Start by making a list of all the debts you owe. Include information about the total amount of money you owe (the balance), the interest rates on your debt, to whom you owe money and the minimum payments on the debt.

If you’re not sure what you owe, follow these tips for common types of debt:

  • Credit cards: The easiest place to get information about your credit card debt is from your monthly billing statement. Your bill will include what your total amount owed, your minimum payment and your interest rate and APR. The statement will also tell you the amount you need to pay each month if you want to eliminate your debt in three years.
  • Auto loans: Car loans can be tricky to track down if you got financing from a dealer. In most cases, a bank or financial institution (called a loan servicer) will collect payments from you and provide you with information about your loan. Your loan servicer should have sent you a welcome letter explaining the loan, with info on the amount you owe, the minimum monthly payment and the interest rate.
  • Federal student loans: If you have federal student loans, visit the National Student Loan Data System. The site allows borrowers to see their loan balances and who services their loans, among other things.
  • Private student loans: If you’re unsure if you have private student loans, you can call your school’s financial aid department. They can reveal which lenders you originally took private loans for.

What about debt in collections?

You can learn about your debts in collections by looking at your free credit report at But whether you should add these debts to your payoff plan can be complicated.

Constant contact from collectors may make you think that you should prioritize delinquent debts over everything else. But that isn’t necessarily true if the statute of limitations has passed. In general, your top priority should be paying your current debts on time and in full; once a debt is in collections, the damage to your credit score is done. Over time, your credit score can recover from a debt in collections, and after seven years, it will drop off your credit report.

2. Choose a strategy to get out of debt

Once you know what you owe, you’ll need to pick a strategy to pay off your debts as efficiently as possible. When you’re not sure which strategy will work for you, create a monthly budget. Your budget will help you see how much money you can put toward debt in a month. Then you can start figuring out a debt strategy. This will involve asking yourself questions such as:

  • Can I afford my minimum monthly payments? If not, you may need to look at extending payments and lowering interest through debt consolidation or a debt management plan.
  • How big is the gap between my income and expenses? If you have a fair amount of cash flow, the debt snowball or debt avalanche could be effective repayment strategies.
  • Do I have a good credit score? If you have strong credit, you may qualify for a balance transfer credit card or debt consolidation loan. Either option can help you repay your debt at a lower interest rate and speed up debt repayment.
  • How long will it take me to get out of debt? Your timeline to pay off debt depends on the amount you owe and which repayment strategy you use. Take financial goals and priorities into account to help you determine how aggressively you should handle repayment.

3. Identify and correct overspending habits

Sometimes your debt is caused by habitual overspending. If, for example, your credit card balances continue to climb even after you prioritize repayment, you may be living beyond your means. Cutting back on restaurant spending, vacations and entertainment may help you fix your cash flow problems.

But if you’ve already cut back in those areas, you’ll have to look at other parts of your budget to make cuts. You may have to downsize for a time to make debt repayment work, like bringing in a roommate to make rent more affordable or temporarily reducing your auto insurance coverage.

4. Seek ways to boost your income

You may find that cutting spending doesn’t allow you to pay off debt as quickly as you want. In those cases, boosting your income can help you achieve your goals. Consider negotiating a raise with your current employer, or applying for jobs that allow you to earn more.

If a raise isn’t an option, take advantage of overtime options to boost your income during debt repayment. And of course, you may want to consider a second job. Teaching group fitness, serving as a referee for youth sports leagues, doing photo shoots for friends, pet-sitting or picking up a seasonal job could help you earn more money.

5. Ask for a lower interest rate

You don’t need to consolidate your debt to land a lower interest rate. You can call your credit card company or other creditor and ask for a lower interest rate. A lower interest rate means more of your monthly payments will go toward your principal balance.

When you call a creditor, explain that you’d like to request a lower interest rate on your debt. You might also ask the company to waive a late fee. During the call, remain calm but assertive. If you have a habit of making on-time payments, make a point to mention this. Creditors want to keep doing business with responsible consumers.

6. Use autopay to keep yourself on track

If you’re trying to pay off debt in a certain period of time, automating your payments can help. When your bills are set to autopay, you can ensure that you make your payments on time, and that you’re keeping the repayment pace you want. Using autopay has emotional benefits, too. When you don’t have to make manual payments, you don’t have to think about debt repayment every month when you sit down to pay bills.

While putting the credit cards and other bills on autopay can help, automation won’t always work in your favor. Having credit cards saved in your internet browser or on shopping sites can trigger you to spend mindlessly. Delete credit or debit card information from as many places as possible, so you aren’t tempted to overspend.

7. Make biweekly payments

Instead of juggling bills on a month-to-month basis, consider making “half” payments each payday. Doing so may help you manage your cash flow better — since you never have to struggle with one huge payment at the start of the month.

Biweekly payments also offer another advantage: Over the course of the year, you’ll make 26 half payments or 13 full payments. That means, you’ll accelerate debt repayment while easing the budget strain.

8. Use windfalls to accelerate debt repayment

When your tracking your debt, a big payment can keep you motivated. It’s not always possible to make huge payments every month, but even one-time payments can help. If you receive a financial windfall, such as an annual bonus or a tax refund check, put the money toward your debt. This can feel like your momentum is growing. Even smaller windfalls can accelerate debt repayment. If you have a garage sale or sell a big-ticket item, such as a musical instrument, put the proceeds toward debt.


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