At a Glance

Carrying a large amount of debt is stressful. Not only is it bad for your credit score, it can keep you from accessing the credit you need in an emergency or to purchase a home. See how our seven easy steps can help you pay down your debt quickly.

7 steps to pay off debt

1. Know how much debt you have

To pay off debt, you need to know how much you owe. Get your credit report and credit scores, as well as your most recent credit card and loan statements. Use the credit report to verify your recorded debts are accurate. Your credit score will help determine if you qualify for lower interest rates.

Related: Debt consolidation loan.

Tip: Look for a free app that lets you link multiple accounts to view your debt. You can also put the info into a spreadsheet.

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2. Choose a repayment strategy

There are a few methods to pay off your debt quickly. While each has its pros and cons, choosing comes down to your personal preference.

Debt snowball

With the debt snowball method, you make the minimum payment on all debts, except the one with the smallest balance. With this bill, you’ll pay as much as possible. Once you pay off this debt, you move on to the next lowest balance, repeating until you’ve paid off all your debt. This approach won’t save on interest fees, but it motivates you to stay on track.

Debt avalanche

With the debt avalanche method, you make the minimum payment on all debts, except the one with the highest interest rate. With this bill, you’ll pay as much as possible. Once you’ve cleared this debt, you’ll move on to the next highest interest rate. Again, you’ll repeat this process until all debt is paid off.

Related: Debt snowball vs avalanche

Debt consolidation

There are a few ways to consolidate debt. Each approach rolls multiple debts into one monthly payment.

  • A balance transfer credit card: Requires good to excellent credit to get a low enough interest rate to offset the upfront fee.
  • A personal loan: Each lender has different eligibility requirements, but better credit will land you a lower APR.
  • A debt management plan: This method requires reaching out to a credit counseling agency. A DMP consolidates payments, extends payoff timelines, and can cut interest rates in half.

The right debt consolidation solution depends on many factors. Compare all options with this tool and choose the one best for you.

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3. Create a budget

By tracking your money and changing spending habits, you can free up cash to pay off debt faster. Start by creating a spreadsheet to track what you spend in a month (or by downloading this free budget template from the FTC).

Common spending categories include housing, food, transportation, health, personal and family, finance, and other. If your budget shows you’re spending more than you make, you’ll want to make some changes.

4. Find ways to spend less money

Small, daily purchases add up-which also means modest money-saving changes can help. Use your budget spreadsheet to find places where you could cut back.

Options could include cooking at home more and bringing your lunch to work. If you like going out, try taking advantage of happy hour pricing. Consider deactivating online streaming services or subscriptions you no longer use.

Checkout the full survey results here: How Young Americans Really Feel About The State Of Their Finances In 2022

5. Find ways to make more money

Boosting your earnings isn’t easy, but it’s possible. Consider picking up extra hours at work, asking for a raise, or starting a side gig.

You might also consider selling items you no longer use-or gifts you’ve never opened. You can sell items online or through a local thrift store or consignment shop. Be sure to apply any of this extra money toward your debt.

6. Use found money for debt

Found money comes from raises, bonuses, inheritance, gifts, and tax returns. Use found money to pay off large chunks of debt. Making additional payments can save you money in interest, speeding up your payoff process.

7. Make plans to treat yourself

After working so hard to reach debt payoff goals, it’s important to celebrate them. Rewards keep you motivated to reach your next payoff goal.

Choose milestones, something enjoyable (and financially reasonable) to celebrate each one, and write them down, so you can look forward to them. Rewards could be as simple as a night out at your favorite restaurant or a weekend camping trip.

More debt payoff strategies

If you are facing more serious debt, here are a few additional methods that can help pay it off faster:

1. Debt settlement

Try calling creditors to negotiate a debt settlement. You may be able to offer a lump sum and pay off much less than you owe. You can also use a debt settlement company to negotiate for you, for a fee that’s often 15-20% of your debt. If you choose this method, use caution. Debt settlement hurts your credit score, and many companies offering this service are unreputable.

Related: How Debt Settlement Works

2. The 401(k) loans

You might consider tapping into your retirement account to pay off debt. Be aware that failure to repay comes with stiff penalties and fees. If you lose your job, this loan is due in 60 days.

Related: 401k Loan To Pay Off Debt

3. Home equity loan or line of credit

If you own a home, you can use your home’s equity to pay off debt. The potential of foreclosure makes this an extremely risky option.

Related: Home Equity Loans vs. Home Equity Lines of Credit