How To Pay Off Debt: 7 Methods To Try

Debt can feel like a heavy burden, but it doesn’t have to be permanent! Did you know the average American household carries over $90,000 in debt?

At one time early in life I took on a job to pay my way through college. I was a debt collector during the 2008 financial crisis. You can imagine the many colorful conversations I had back then to say the least.

Over the last decade I have committed myself to remaining debt free. Carrying a loan balance has always bugged me and I force myself to be relentless in paying them off early.

Whether you’re tackling credit card balances, student loans, or personal loans, the right strategies can help you pay off debt faster and regain financial freedom. Let’s break it down with practical, easy-to-follow methods that will get you closer to a debt-free life.

Understand Your Debt Situation

If you're working towards financial independence, then consumer debt is enemy number one, and to be eliminated as swiftly as possible without mercy. It’s crucial to know your total debt balance and interest rates because this can be the single largest drag on your wealth that you will encounter.

Think of it this way: you're either paying interest or earning interest.

Once you're debt free, you can go full throttle on investing without the risk of debt dragging you down.

Making only minimum payments might seem like the normal thing to do at first, but they're really designed by creditors to guarantee that you'll stay in the same position for years to come.

Use tools like budgeting apps, online resources, or even spreadsheets to organize your debts and create a solid strategy you can stick to.

Before you choose which method fits your situation you'll need to assess your monthly cash flow so you know what extra funds you can use to create a realistic repayment plan.

Method #1: The Debt Snowball Method

The debt snowball has now become synonymous with Dave Ramsey and there's a big reason why... it gets results. A significant portion of people who actively try to pay off debt choose this strategy.

The snowball method works because it is centered around the concept of starting small for big wins.

Mathematically, it's not the most cost effective way to pay off debt. It is ideal for those who need motivation through quick successes. That motivation creates momentum which is what is needed when tackling the goal of getting out of debt.

Step-by-step guide to getting started:

1. Sort out all of your debts from smallest to largest
2. Decide how much extra you can afford to pay per month
3. Apply that extra amount to your smallest debt first, in addition to the minimum amount, while continuing to make minimum payments only to the others
4. When your first balance is paid off, apply the previous minimum and extra amount to the next balance in line
5. Continue until debt free

Let's say that you have a small balance on an appliance you bought for $1,000 and are taking advantage of an interest-free promotion. You also have a credit card balance of $3,000 at 24.8% interest and another balance of $4,000 at 12.9%. You have an extra $300 you can apply to your debt.

With the debt snowball method, the $1,000 balance will be first on the list to tackle. You'll apply the $300 payment, addition to the minimum, while still making minimum payments to the other balances. In 3 months you should have that paid off. Now you take the total payment you were making previously and apply it to the $3,000 balance while still making minimum payments on the last credit card.

You'll accelerate through paying off your debt just by making this simple adjustment.

Method #2: The Debt Avalanche Method

The debt avalanche differs than the snowball method in that you're focused on paying off high-interest debts first to save money in the long term. If you're numbers-focused and patient, then this might be the best fit for you.

It can seem intimidating initially because you start with the largest interest rate first, although because less interest accrues, you'll actually reduce the amount of time it will take to get out of debt.

Step-by-step guide to getting started:

1. List all debts by their interest rates starting from highest to lowest
2. Decide how much extra you can afford to pay per month
3. Apply that extra amount to your highest interest debt first, in addition to the minimum amount, while continuing to make minimum payments only to the others
4. When your first balance is paid off, apply the previous minimum and extra amount to the next balance in line
5. Continue until debt free

Let's take the previous example from above and change it to the debt avalanche. Everything remains the same with a small balance on an appliance you bought for $1,000 and are taking advantage of an interest-free promotion, credit card balance of $3,000 at 24.8% interest, and another balance of $4,000 at 12.9%.

With the debt avalanche method, the $3,000 credit card will be first on the list to tackle because it carries the highest interest rate. If you can put an extra $300 towards that debt while making minimum payments on all three, then you'll do so until it's fully paid off. Then you add that debt's minimum to the $300 extra and put the total toward the next bill with the highest interest rate. The interest free balance will be paid last.

Method #3: Consolidate Your Debt

Debt consolidation is a strategy that combines multiple debts into a single loan or line of credit.

Consolidation can simplify payments and possibly lower interest rates. Basically you are applying for a new loan and the funds from the new loan are used to pay off your existing debts. Now you make only one monthly payment to the new lender.

This affords you the opportunity to make a lower monthly payment, therefore pay off debt faster, and help you improve your credit score. There are several types of consolidation such as personal loans, balance transfer cards, or HELOCs (home equity line of credit).

You want to make sure to carefully assess the terms and fees of any consolidation offer.

Keep in mind the promotional interest rate and how long it lasts. If you don't pay the balance off you could be left with a higher interest rate or even pay interest for the period of the promotion. This could leave you in a worse position than when you started so make sure you've got a game plan to get things done in the defined time frame.

Also, there may be a great promotional offer but you must still consider the balance transfer fee and if it makes sense. Do your due diligence and shop offers around to get the best fit for your situation.

Method #4: Negotiate with Creditors

The main thing I learned from being a debt collector is that it's easy to become overwhelmed and everybody has a story as to how they got there but not everyone handles what to do about it the same way.

For instance I called a 19 year old man who was OVER his credit limit of $20,000 and 2 months behind on payments. He was a mechanic and had been fronting auto parts for a body shop he was working at which is a pretty lame situation for the owner to put him in. Anyways, his response to the balance and late payments was "You guys gave a 19 year old a $20,000 credit limit. What did you think was going to happen?!"

How to Save Money by Lowering Interest Rates and Settlements
Did you know you can ask your lender to lower that interest? Here’s how:

• Be polite and prepared. Before you call, gather information about your account and why you need help.
• Share your story. Explain why a lower interest rate would make it easier for you to pay.
• Offer to pay what you can. Sometimes, companies will settle for less than the full amount you owe if you can pay right away.

Being calm, confident, and prepared can make a big difference! That voice on the other line is a person too. They're willing to be empathetic and flexible as long as you're serious and committed to honoring your word.

When and How to Find a Credit Counselor
A credit counselor is like a coach who helps you with money problems. You might need one if:

• You feel stressed about how to pay your bills.
• You’re not sure how to make a budget.
• You want to stop using credit cards but still owe money.

To find a good credit counselor, look for someone with experience and who doesn’t charge big fees. Nonprofit organizations often have great counselors who really care about helping you.

What is a Debt Management Program?
A debt management program is like a plan your credit counselor helps you create. It’s made just for you and helps you pay off your debts step by step.

Here’s how it works:

• Your counselor talks to the companies you owe and tries to lower your payments or interest rates.
• You send one payment each month to the program and they divide it between all the people you owe.
• Over time, your debt gets smaller, and you can feel proud of your progress!

It’s a great way to get back on track and feel in control of your money again.

Method #5: Increase Your Income

The strategies I've gone over are well and good but this method is my favorite by a long shot. Take on side hustles to earn extra money for debt repayment. Become an Uber driver, deliver food, or whatever else it takes.

I knew someone who did overnight trash pickup from offices as a way to pay the bills while his main business was getting off the ground. There is no shame in doing what needs to be done, just get it done.

Selling unused items or starting a freelance business are other good options. You may have been meaning to get around to decluttering anyways so it's a win-win.

Have some skills or hobby that you can turn into a freelance gig? Go for it and who knows - that may turn into the next big thing or simply what fit the need at the time to get out of debt.

If you're like me and are in sales, then dig down deep and focus on your craft to increase your ability to earn extra commission with every opportunity you get.

Avoid lifestyle creep during the repayment journey. This means that as your income increases, so do your expenses.

Leverage bonuses or tax refunds to pay down debt. Earmark them ahead of time for this purpose and pretend you're never going to receive it in your bank account as to reduce the feeling of losing something or it being taken away after the fact.

Method #6: Reduce Expenses

There are a ton of practical ways to cut spending including meal planning, canceling subscriptions, and shopping smart. Create a minimalist budget that aligns with your debt goals. This means it might be a bit more spartan than a normal budget.

Don't just trim the fat in some areas; you may have to cut entire categories out completely depending on how committed you are. Don't worry, it's only temporary until you've gotten free and clear.

Dave Ramsey says you have to "live like no one else so that later you can live like no one else". Check out this guide to become more frugal in your daily life.

Method #7: Seek Professional Help

A debt relief specialist is like a money expert who helps you figure out tricky problems with your bills or savings. You might need one if:

• You’re having trouble paying off debt.
• You’re not sure how to plan for big goals, like buying a house or saving for college.
• You feel overwhelmed and need someone to guide you.

They can help you make a plan and find smart ways to manage your money.

Understanding Bankruptcy as a Last Resort
Bankruptcy is a serious decision that happens when you just can’t pay your debts, no matter how hard you try. It’s like starting over with a clean slate but it can also affect your ability to borrow money in the future.

That’s why it’s only used when there are no other options left. If you’re thinking about bankruptcy it’s important to talk to an expert first to understand how it works.

Where to Find Free or Low-Cost Financial Advice
Good news—there are places you can go to get help without spending a lot of money!

• Nonprofit organizations often offer free advice about budgeting and managing debt.
• Government programs can connect you to helpful resources.
• Libraries and community centers sometimes host free financial classes.

These resources can give you the tools to handle money wisely without breaking the bank!

Becoming debt-free isn’t just a dream—it's a number one priority if you're serious about building wealth and achievable with the right plan!

Trust me when I say it's a great feeling and I want you to know this first hand also.

Understand your debt, choose the best repayment method, stay disciplined, and you’ll be one step closer to financial independence. Once it's gone and out of your way then there is nothing stopping from going full throttle with investing.

Start today by picking one of these proven strategies, and remember, every small step counts. Ready to tackle your debt head-on? Let’s do this together!