Tools & Tips to Pay Off Debt
Figuring out the best ways to pay off debt can be tricky — especially if you’re struggling to make ends meet as it is. Whether you’re dealing with credit card debt, medical debt, student loans, auto loans or all of the above, paying it off can feel like an impossible task.
However, no matter how daunting it becomes, reducing debt is important for both your credit score and overall financial health. Having a plan in place and implementing different debt payoff methods will help.
When looking at debt payoff methods, it’s important to understand the details of your various accounts, use helpful resources, create a realistic repayment plan and stay motivated. If all else fails, there are professional debt management strategies. There’s no shame in asking for help.
If you’re ready to determine the best debt payoff methods, it’s time to sit down and take a serious look at your finances. Once you understand exactly what you need to accomplish, you can explore various debt payoff methods and create a repayment plan (or multiple plans if you’re dealing with more than one avenue of debt). Find out more tools and tips to help you along the way.
Understanding Your Debt: The First Step to Paying It Off
First and foremost, you must have a clear picture of what you owe, who you owe it to and how much interest is accruing in each account.
Credit Card Debt
Credit card debt is one of the most common types of debt and can feel completely overwhelming. If you’re not sure how much you owe on your credit card(s), check your banking app or contact your credit card company directly. Write down the total amount and the interest rate affixed to it. The average credit card interest rate is a whopping 24%.
Medical Debt
One of the most debilitating forms of debt is medical debt. As of February 2024, Americans collectively owe around $220 billion in medical debt. Extended hospital stays, cancer treatments and emergency care can all result in hefty bills. Most medical providers have an online portal that allows you to review your balance, but calling the billing department is another easy way to find out how much you owe.
Various Loans
Another common type of debt is money owed on loans. Auto, personal and student loan payments can pile up, easily leading to penalty fees. Write down the total amount you owe to each loan, the expected monthly payment amount and any interest attached to these accounts.
Once you combine the total from all of your debts, you’re ready to move on to step two: finding the methods that work for you.
Popular Debt Payoff Methods and How They Work
Of course, you don’t have to follow any one school of thought when paying off your debt. But it doesn’t hurt to consider some of the more popular debt payoff methods.
Snowball Method
The snowball debt payoff method involves making minimum monthly payments on all of your debts but adding extra funds to the smallest debt in the pile until each one is paid off.
For example, if you owe $20,000 in medical debt and $10,000 in student loans, you would pay extra (the amount is up to you) toward the student loans each month until it is paid off. Then you would apply an extra amount toward your medical debt each month until you pay that off, too.
Avalanche Method
The avalanche method takes a slightly different approach than the snowball method. Rather than paying off debts from smallest to largest, you start with the debt with the highest interest rate. This method is helpful when dealing with high-interest debts like credit card debt.
Debt Consolidation
Sometimes the best way to tackle all of your debts is by consolidating them into one account. You can either take out a personal loan to pay off everything or work with a debt consolidation company to do it for you.
Debt consolidation can be a great way to lower interest rates, improve your credit score and simplify the process, but it can also provide a false sense of security. Some people see a more manageable monthly payment and feel comfortable spending more money again.
Tools and Resources to Help You Pay Off Debt
Tthere are a myriad of other tools and resources out there to help you figure out how to pay off debt.
Ask Your Bank
One of the best places to look for debt repayment information is your bank. Most banks offer free educational resources, and you can always make an appointment with a personal banker to get advice.
Visit a Local Library
Another (free) place with a wealth of resources is your public library. You can check out books about personal finance, budgeting and debt management both online and in person. Or if you prefer audiobooks, find free downloads through library apps like Libby.
Download Budget Apps and Online Calculators
If you’re looking for an app to help you pay off your debts, Cleo and Quicken Simplifi are some great options. Online debt calculators are also great tools for figuring out how to pay off debt.
Creating a Debt Repayment Plan That Works for You
Once you’ve taken stock of your debt and pursued some helpful resources, it’s time to make a personalized debt repayment plan. Everyone’s financial situation is different, so this is never a one-size-fits-all scenario. The most important things to remember are to set realistic goals, create a budget and allocate funds toward your debts each month.
Setting Goals
In order to set meaningful finance goals, ask yourself what matters most to you. Are you hoping to pay off your debt before a big life event? Is one particular debt hanging over your head? Do you need to get your credit card bill under control for your mental health? The answers are different for everyone. Try setting weekly, monthly, quarterly and yearly goals toward your debt repayment to keep you on track.
Budgeting
To stick to your goals, you need a budget. Determine how much you’re currently spending and where you can cut back, then find a system that will hold you accountable. For some people, withdrawing cash each month helps them store money away until payments are due. For others, using a budgeting app connected to your bank account is enough to stay on track.
Making Payments
This is the most important part of the plan, because your debt won’t budge if you’re not feeding it. The easiest way to stick to your debt repayment plan is to set up automatic monthly payments. If you can’t do this, set reminders on your phone and calendar a few days before payments are due. You can even leave sticky notes around the house if it helps keep you accountable.
How to Stay Motivated and Track Your Progress
If you’re serious about paying off debt, staying motivated is vital to the process. Even with a solid plan in place, apps tracking every dollar you spend and a tight budget, paying off debt can become emotionally exhausting over time.
Mark Your Goals in a Calendar
Whether you use bright-colored markers on a physical calendar or rely on your phone, write down payoff goals where you’ll be able to see them. Reminders not only help keep you on track but they also give you something to look forward to throughout the month.
Check-in Often with a Friend
Find a debt payoff buddy and keep them updated. Whether it’s your spouse, a sibling or a coworker, having someone to check in with often will help keep you motivated. Schedule weekly texts or monthly phone calls or coordinate online.
Celebrate Milestones
Yes, you’re trying to save money and pay off your debt, but a little celebration every now and then is important for morale. When you’ve reached a goal in your repayment plan, find room in your budget to go out with friends, purchase a special item or even take an affordable vacation.
Adjust When Needed
If your repayment plan isn’t working out, or if something unexpected comes up, don’t beat yourself up. Sometimes you need to make adjustments, and that’s OK. Just be sure to keep track of changes, and continue holding yourself accountable.
