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How to pay off debt fast

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Most American citizens carry debt at some point in their life. However, some debts are greater than others. And while some people put their debts off in perpetuity, others decide to create a plan, stick to it, and rid themselves of the financial burden.

There are a few methods that consumers can implement to get out of debt steadily:

Start with an audit

Before doing anything else, we suggest you list out all of your debts – credit card balances, student loans, car loans, medical bills, personal loans, and anything else. You can do this on a simple sheet of paper, a spreadsheet, or a digital budgeting tool. Be sure to include the name of the lender, the interest rate, the total amount owed, and the minimum amount due each month for each of your accounts.

Next, you’ll want to list out the other parts of your budget – your income and your bills. Whether you’re building your budget for the first time or you're sitting down to review a budget you’ve had for years, try to allocate each dollar of income to an expense or payment. See if you can identify any areas where you’re able to reduce or cut expenses (subscriptions are a great place to start with this). The more money you can put towards debt repayment, the faster you’ll be out of debt. Check out our financial calculators to see how long it might take to pay off your debt or what you might be able to save by attacking it.

There are many apps and online services available that will help you visualize your spending patterns. Some financial institutions (like First Tech) allow you to add external accounts to their online dashboards so you can view statements and make payments within your digital banking platform.

For additional resources on budgeting and saving, check out our library here. Now that you have a better understanding of where your debts stand, the rates, and terms of each – it’s time to start looking at debt repayment strategies.

The Snowball method

The Snowball Method is a debt-reduction strategy where you pay off debt from smallest to largest, gaining momentum as you knock out each remaining balance. Here’s how it works:

Step 1: List your debts from smallest to largest regardless of interest rate.

Step 2: Make minimum payments on all your debts except the smallest.

Step 3: Pay as much as possible on your smallest debt.

Step 4: Once your smallest debt is paid in full, apply that payment amount to the next smallest debt.

Step 5: Repeat until each debt is paid in full. Be sure to continue making at least minimum payments each month on all your debts.

The benefit of this method is that you’ll eliminate the number of debts you’re carrying quicker, therefore eliminating the multitude of interest rates you’re responsible for. This strategy is best used when someone has many debts with similar interest rates. It’s also a good method for people who may get discouraged if they don’t see short-term progress. However, if you have many debts, some of which have significantly higher interest rates, you may want to try the Debt Avalanche method.

The Debt Avalanche method

The Debt Avalanche method is when you focus on paying off the debt with the highest interest and work down from there. The less you pay in interest, the more you can put toward the repayment of the principal. Here’s how it works:

Step 1: List your debts from highest to lowest interest rate.

Step 2: Make minimum payments on all your debts except the one with the highest interest rate.

Step 3: Pay as much as possible on the one with the highest interest rate.

Step 4: Once your highest interest rate is paid in full, move on to the next highest.

Step 5: Repeat until each debt is paid in full.

In contrast to the Snowball method, the benefit of this method is that you’ll eliminate the highest interest rates at the start rather than letting them accrue interest for longer. This will save you money in the long run – especially if you have a debt that accrues interest more aggressively than the others.

Debt consolidation loans

Finally, you should be aware of debt consolidation as a tactic. While it may seem counterintuitive to take out a loan to pay your pre-existing debts, paying off multiple debts with a new loan may actually help you:

  • Lower your overall monthly expenses
  • Increase your cash flow
  • Reduce stress with fewer bills to juggle
  • Reach savings goals more quickly

Most importantly, pick a plan you think will work best for you. Understand what motivates you and make sure to stick with it. Getting out of debt can be a challenge without a doubt, but it’s one that you can overcome with knowledge, a plan, and patience. If you’re interested in meeting with one of our financial experts to talk through your debts and payment options, schedule an appointment.