Photo of a man researching different methods to pay off debt.

3 ways to pay off your debt

If you’ve got debt, you’re not alone. The average American has about $80,000 in debt, excluding home mortgages. But unexpected or unplanned debt such as medical bills or credit card balances can be a tipping point into financial insecurity.1

If you have too many payments every month, you might get behind on other financial goals such as building an emergency fund, taking a vacation, or adding to a retirement account.

Graphic showing the total average America debt is $14,870 and the top debts are auto loans, credit cards, student loans, and other debt.

Try to make progress every month on reducing your debt. It takes a little organization up front, plus a strategy that fits your budget and your preferences. These steps can help:

Make a list of all your debt.

Before you start paying off debt, tally how much debt you have. Make a list with this information for each bill you owe.

The details you need to know about every debt:

  • Debt name/account
  • Type of debt (credit card, student loan, etc.)
  • Balance
  • Interest rate (some debt is more expensive, i.e., has a higher interest rate, than others)
  • Payment terms/length
  • Minimum monthly payment

Figure out the maximum you can pay every month.

Review your budget and answer these questions:

  1. How much do you need to pay for necessities such as rent/mortgage, insurance, utilities, and food?
  2. How much do you currently pay each month toward debt?
  3. Can you temporarily trim a few budget items to put even extra toward debt?
  4. Any extra income—tax refund, side hustle, things like that—to put more toward debt?

The 50/30/20 approach3 simplifies budgeting:

Graphic showing the 50/30/20 approach is to spend 50% of your income on the things you need, 30% on the things you want, and 20% the things you're saving for.

Pick a debt repayment strategy.

In general, there are three debt repayment strategies that can help people pay down or pay off debt more efficiently.

What it’s calledHow it worksHow you keep it goingWhy some people like it
The snowball method
How it works
How it works
Pay the smallest debt as fast as possible. Pay minimums on all other debt.
How you keep it going
How you keep it going
Then pay that extra toward the next largest debt.
Why some people like it
Why some people like it
A quick payoff is a quick win and can be a confidence booster.
Debt avalanche
How it works
How it works
Pay the largest or highest interest rate debt as fast as possible. Pay minimums on all other debt.
How you keep it going
How you keep it going
Then pay that extra toward the next smallest debt.
Why some people like it
Why some people like it
Paying off a big debt can boost a feeling of control and gets rid of big interest, too.
Debt consolidation
How it works
How it works
Combine debts into a single account.
How you keep it going
How you keep it going
Avoid any other debt until post-payoff.
Why some people like it
Why some people like it
Possible lower interest and one account increases focus.

Celebrate success and stay on top of future debt.

Sometimes debt can be good to help you build a credit score or accomplish goals—such as buying a house—that would be hard to do without a loan. But lots of extra debt can weigh down your credit score and add up to interest you didn’t want to pay. So celebrate every extra payment—and every debt pay off, too.

What to do next?

1 https://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx

2 Experian Consumer Credit Review 2020

3 All your worth: The ultimate Lifetime money plan by Elizabeth Warren and Amelia Warren-Tyagi

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