At a Glance

If you’re currently in debt-whether from credit card bills, mortgages, or student loans-you’re not alone. The current household national household debt is approximately $13.54 trillion.1

Debt can have a negative impact on your credit score and become increasingly higher over time due to interest payments.

Why Paying Off Debt Is So Important?

Paying off debt is crucial for a variety of reasons, including considerations that involve your overall financial wellness, credit score, and more.

Why Debt is Dangerous?

Debt becomes dangerous when you continue borrowing without repaying your balance. Interest rates will continue to increase your debt, and the more time it takes you to pay it off, the more money you’ll owe.

Debt not only makes achieving your financial goals difficult, it negatively impacts both your future income and your credit score.

How Debt Hurts Your Credit Score?

Checkout what makes up your credit score


Your account balance should comprise less than 30% of your credit limit. If your credit limit is $20,000, you don’t want your balance to be greater than $6,000. Debt can make your balance skyrocket, which will hurt your score.

In addition, if you amass too much debt and pay your credit card bill late or are unable to pay it, this will hurt your payment history and further impact your credit.

How Much Debt is Okay to Have?

You might be wondering: How much debt is too much debt? Well, everyone has their debt threshold that they’re willing to tolerate or that their lifestyle can withstand. It really depends on your income, monthly expenses, and spending habits. To figure out the best way to get out of debt, it’s important to calculate how much debt you have and understand why you got into debt in the first place. Achieving and maintaining a debt-free life relies on you committing to digging yourself out of the hole and changing whatever behavior helped get you there.

Types of Debt

There are two types of debt: revolving debt and installment debt.

  • Revolving debt:

    Revolving debt is the type of debt you accrue from credit cards, where you carry the amount you haven’t paid off from month to month. Interest rates can change, and you can borrow as much as your credit limit allows.

  • Installment debt:

    Installment debt comes from car loans, mortgages, etc. Though there are exceptions, the interest rate, payments, and amount borrowed are usually fixed.

If you pay either type of debt late or miss a payment, you’ll have to pay a late fee. It will also be reported to your credit bureau.

However, high revolving debt balances in comparison to your credit limit are what really ding your score. In this article, we’ll focus on the best strategies to help pay off your revolving debt.

Best Ways to Pay Off Debt

The best ways to pay off your debt include the following:

Create a Budget

Create a budget to help keep your spending under control. Effective budgeting helps you make sure you have enough money to cover the necessities—like rent/mortgage, food, electricity, etc.—and then enough to start chipping away at your debt. Building a comprehensive budget is the first true step to paying off your debt because you need to know how much you’re spending, where you can cut expenses, and what you can realistically afford to put toward your debt each month.
You could try following the 50/30/20 budget rule, in which you allot 50% of your budget to what you need, 30% to what you want, and 20% to your savings.2

Pay More Than the Minimum

This seems kind of obvious, but you should try to pay more than your card’s minimum balance. It will help you pay off your balance faster and owe less interest. You’ll notice that going above and beyond your minimum payment is a central concept in both the debt snowball and avalanche payoff methods.
Here are some ways you can pay more than your minimum payment on your debts:

  • Cut unnecessary expenses (like canceling subscriptions you don’t use or buying generic brand food items) to give yourself financial flexibility
  • Work overtime or pick up extra shifts
  • Find a side hustle to earn extra money (food delivery and ride sharing are both great options because you can create your own schedule)
  • Ask for a raise

Debt Snowball

The debt snowball method works by paying the minimum amount of each account and then using whatever money is left toward paying off the account with the smallest overall balance. Once the smallest account is paid off, you’ll work towards paying off the next smallest account, and so on. Test it out on your situation with a debt snowball calculator.

  • The good

This method is very motivational since it encourages small wins early on in the debt repayment process.

  • The bad

The snowball method won’t save you as much money as the debt avalanche method since it doesn’t take into account interest rates. Taking longer to pay off high-interest debt will cost you more in the long run.

Debt Avalanche

The debt avalanche method is a debt repayment strategy that focuses on paying the minimum amount of each account, and then using whatever money is left to pay off your debt, starting with the account that has the highest interest rate. Once that account is paid off, you move to the account with the next highest interest rate.

  • The good

Each account you fully pay off allows you to put more money toward the next account, since you’re eliminating the highest interest rates first.

  • The bad

By using the avalanche method, it may not feel like you’re getting anywhere. Cutting down interest expenses isn’t as satisfying as clearing a balance for good.

Debt Consolidation Loan

A debt consolidation loan is a low-interest personal loan that’s taken out to pay off high-interest debt. Debt consolidation allows you to get out of debt quickly, leaving you with just the loan to pay off in monthly installments.

  • The good

A debt consolidation loan is a low-interest personal loan that’s taken out to pay off high-interest debt. Debt consolidation allows you to get out of debt quickly, leaving you with just the loan to pay off in monthly installments.

  • The bad

It’s possible that you may not get a better rate on your loan than what your credit cards currently charge. Again, make sure to read the fine print and compare the interest rates.

Related: How does debt consolidation work

Balance Transfer Credit Card

Balance transfers help consolidate your debt and decrease your interest rates. With a balance transfer, you move your credit card balance to a new card with a lower interest rate. The new card is basically used to pay off the owed balance of your old card. While you may have to pay a balance transfer fee, in many cases the amount you can save with the lower interest rate is still greater than the fee.

  • The good

You save money on interest and consolidate your payments.

  • The bad

The lower interest rate of your new card isn’t permanent. For example, 0% introductory APR credit cards only offer that rate for a limited time.

Other Strategies to Pay Off Debt

Other strategies to pay off revolving debt include:

Consider a Debt Management Plan

If your debt is continuing to rise and you feel overwhelmed, consider a debt management plan. Debt management plans, offered by credit counseling agencies, can help you pay back your unsecured debts by putting you on a repayment plan.

Lower Your Interest Rates

Lowering your interest rates can help you pay off debt quickly. Here are a few ideas

Consolidate Debt With a Personal Loan

For those with a lot of debt at a high interest rate, one way to get out of debt is with debt consolidation through a personal loan. Personal loans tend to have lower interest rates than credit cards. With a personal loan, it can be easier to track exactly how much you owe each month and how long it will take to pay off. Personal loans come with fixed interest rates, monthly payments and repayment periods.

Consolidate Student Loan Debt

If student loans are your biggest contributor to debt, there are resources that can help. Consider student loan consolidation or an income-based repayment plan. There also are certain situations that allow you to have your federal student loans forgiven, canceled, or discharged.

Cash-Out Refinance

If you’re a homeowner, you can replace your current mortgage with a larger one to help consolidate your debt. You get the difference in value between the old and new mortgage in cash, and you can use that money to pay off your debt. A cash-out refinance is different from a second mortgage because you’re not adding a monthly payment—you’re just replacing your current mortgage.

Debt Settlement

Debt settlement could save you money because you offer a lump-sum payment to one of your creditors in exchange for forgiveness of the remaining debt. So, if they agree to the settlement plan—typically after multiple missed payments—you’ll usually end up paying less than the full amount. The catch is that your credit score will take a hit from the missed payments, and the account will appear on your credit report for up to seven years as settled and not paid. Plus, forgiven debt counts as income when tax season rolls around.

Which Debt to Pay Off First?

Depending on your financial situation, behavior, and personal preference, you might prioritize paying off your smallest balance or highest-interest debt first. With the debt snowball method, you focus on putting extra money toward your smallest balance until it’s fully paid off. This debt payoff strategy is best for people who need motivation and quick wins. With the debt avalanche method, you focus on putting extra money toward your debt with the highest interest rate. This debt payoff strategy is best if you want to save money on interest in the long run and are good at sticking to a payoff plan.

Can’t Decide Which Debt to Pay Off First?

Try our debt payoff calculator to see which plan works best for you.

How to Pay Off Debt Fast?

The faster you get out of debt, the faster you can enjoy that debt-free lifestyle and start working toward those loftier financial goals like buying a new car, owning a home, or saving for retirement. The fastest way to pay off debt is knowing how much you owe, picking the right debt payoff strategy, and sticking to it.

Read more: How to Pay Off Debt Fast

How to Pay Off Debt Fast with Low Income?

Low income can add another layer of complication to your debt payoff journey. But, with savvy budgeting and a repayment strategy that makes sense for your current finances, paying off debt with low income is still very possible.

Read more: How to Pay Off Debt Fast with Low Income

How to Pay Off Credit Card Debt Fast?

If credit card debt is what’s dragging you down, there are plenty of ways to pay it off quickly—and most involve lowering your interest rate. Popular strategies include getting a debt consolidation loan, opening a balance transfer credit card, and paying with cash or debit while you knock out your credit card debts one by one.

Read more: How to Pay Off Credit Card Debt Fast

Should You Pay Off Your Debt or Invest?

The rule of thumb is: If you can earn more on your investments than your debts will cost you in interest, maybe it makes more sense to invest. Our suggestion is to pay off that high-interest debt before gambling on risky investments, though. It’s also important to consider if high-risk investing and spending is what got you into debt in the first place. If that’s the case, debt payoff sounds like the way to go.

FAQs About Debt Payoff

Is It Better to Pay Off Debt or Declare Bankruptcy?

If you have the financial means, the best thing to do with your debt is to find a way to pay it off. There are so many different options available to you, depending on your income, credit score, and other factors. If you can’t find one that makes sense, you may need to decide between debt settlement and bankruptcy. Debt settlement might save you money, but it will hurt your credit and complicate your tax filing. Chapter 7 bankruptcy removes debt in just a few months but will also damage your credit. One advantage bankruptcy has is that creditors will not be able to sue you.

Is It Better to Save or Pay Off Debt?

If you pay off debt before establishing savings, you’re probably going to rely on your credit card to cover unexpected expenses, which will only add to your debt. If you put money toward savings instead of debt payoff, you’re racking up interest payments over time. It sounds like a cop-out, but the ideal approach is to do both: pay off debt and save. And there’s so much more to the right answer than just that.

Read more: Is It Better to Save or Pay Off Debt?

How Do You Pay Off Tax Debt?

When it comes to paying off tax debt, you have a few options:

  • Personal loan
  • Credit card
  • Mortgage refinance
  • Installment agreement with the IRS
  • IRS Offer in Compromise

Each method has its pros and cons, and you may not be able to use all the options listed above depending on your credit limit, credit score, and whether you own your home.

Read more: How to Pay Off Tax Debt