How to pay off a debt



Debt can be a frustrating problem. If you are in debt, know that you are not alone. The average American has $ 38,000 in personal debt, excluding what is owed on a mortgage.

But if you are in debt, that doesn’t have to be your reality forever. Here’s how you can pay off your debt for good.

How to pay off debt quickly

When it comes to paying off debt, there are often two methods that people recommend: the snowball method and the avalanche method.

The avalanche method:

With the avalanche method, the process prioritizes paying off the debt with the highest interest rate. So that credit card debt with an interest rate of 22% would take priority over the repayment of your student loans with an interest rate of 5%, regardless of the balance.

To use the avalanche method, you must first make all the required minimum payments – this is important! You don’t want to ignore the required payments.

Then you would put all the extra money you can into debt with the highest interest rate. Once this is paid off, you will invest additional money for your debt with the next highest interest rate. The idea is that by paying off your debt that has the highest interest rate first, you will be spending less interest.

What does it look like in action? Let’s say your unpaid amount is made up of these amounts:

  • Student loan: $ 15,000 – 5%
  • Auto loan: $ 5,000 – 4%
  • Credit Card: $ 7,000 – 22%

Under the avalanche method, you would make all required debt payments and then prioritize paying off your debts in the following order:

  1. Credit card debt – $ 7,000
  2. Student loan debt – $ 15,000
  3. Car loan – $ 5,000

Any extra money you can spend on your debt will go to your credit card first. Once this is paid off, you will put the extra money on your student loan. And finally, you would put the extra money on your car loan after the other two debts are paid off.

The snowball method:

Another popular method of debt repayment is the snowball method. Rather than prioritizing your debt with the highest interest rate, you would pay off the smaller debt first. The idea behind this method is that you will be able to see your progress faster and become more motivated. You will likely pay more interest, but this approach can give you the motivation to continue on your debt repayment journey.

To use the snowball method, you must first make all of your required minimum payments.

Then, with all the money left, you would spend it entirely on your smallest debt balance.

Let’s go back to the same example as above, but using the snowball method. Your outstanding payment is made up of these amounts:

  • Student loan: $ 15,000 – 5%
  • Auto loan: $ 5,000 – 4%
  • Credit Card: $ 7,000 – 22%

Using the snowball method, you would pay off your debt in the following order:

  1. Auto loan – $ 5,000
  2. Credit card – $ 7,000
  3. Student loan – $ 15,000

Even if your car loan has the lowest interest rate, you have to pay it off first because it has the smallest outstanding balance.

Additional tips for paying off debt

Choosing a method to pay off your debt is a smart step, but there are a few other things you’ll want to do before you fully embark on your debt repayment plan.

  • Get a realistic idea of ​​your budget: Before you know how much money you can afford to pay each month to pay off your debt, you need to know your budget. How much do you earn and how much do you spend? Knowing this will give you a realistic expectation of how quickly you can pay off your debt.
  • Cut costs: Once you’ve set your budget, is there a place where you can cut costs? Every dollar you avoid spending is another dollar you can spend on your debt. Take a close look at your spending and decide what you can reduce while paying off your debt.
  • Earn More: One way to speed up your debt repayment is to earn more money. Is there a way to earn a little more each month? Maybe it takes more hours of work or occasional dog sitting which can add a little more money to paying off your debt.

How to pay off debt and save

Is it possible to pay off debt and save money at the same time? Absoutely. Paying off debt doesn’t have to be an all-or-nothing approach. It’s a good idea to balance putting money aside for your retirement and emergencies while paying off your debt.

Depending on the amount of your debt, it may take years to pay it off. Delaying saving during this time can actually lead you into debt. If you don’t have a stash of cash ready to use on a rainy day (like when your car breaks down), you’ll end up increasing your debt… which is exactly what you want to avoid.

As you revise your budget and create your debt repayment plan, set aside a little extra money each month in a savings account. While it can be tempting to spend every available dollar on your debt, there will come a time when you will be thankful that you have savings to fall back on.

How To Pay Off Debt On The Credit Report

If you’ve received calls from a debt collector, your missed payments probably mean your debt has been collected. This means that the company you owe money to has hired someone to try and collect what you owe.

The Consumer Finance Protection Bureau recommends a three-step process to pay off your debt it’s in the collections.

Step 1: Get Debt Details

Before you start paying off debt, you’ll want to know who you owe the debt to and how much you owe. If you think the debt isn’t right, this is the point where you will dispute it.

Step 2: Create a repayment plan

Many creditors are willing to negotiate with you – they want to get as much money back as possible and it is in their best interest to work out a payment plan. Before creating a payment plan, it’s a good idea to look at your financial situation and decide how much debt you can pay off by what time frame.

If you don’t know the best way to proceed, a credit counselor can help.

Step 3: Negotiate

Once you have a plan that you are sure you can achieve, it’s time to negotiate with the debt collector. Work out the repayment plan, including how much you will pay and how you will pay it. Once you’ve come to an agreement with them, get it in writing before you start making payments.

Paying off debt is a journey, but it’s a journey worth it in the long run.

This article is part of the Her Wallet series. Her Wallet is a home and finance series for women who want to get the most out of their money and lifestyle. For more information, visit

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