9 Tips to Pay Off Debt

Debt is a major problem for a lot of people. According to Experian, the average debt per person was approximately $96,000 as of 2021. That number includes credit card balances, mortgages, student loans, and car loans. 

If you have a substantial amount of debt, paying it off can feel impossible. If you don't know where to start, here are nine tips to pay off debt faster and get control of your finances. 

1. Calculate how much debt you have

If you’re overwhelmed by your debt, you may not have looked at your accounts in a while. While it may be scary, the first step to getting out of debt is understanding exactly how much money you owe. 

Review all of your bank, loan and credit card statements to see what you owe and what the interest rates are for each account. If you aren’t sure what debt you have, you can find out what you owe by reviewing your free credit report at AnnualCreditReport.com. 

2. Pick a debt payoff strategy

Once you know what types of debt you have and their interest rates, you can choose a debt repayment strategy. There are two main approaches:

• Debt snowball: With the debt snowball method, you make a list of all your debts and order them from the account with the smallest balance to the one with the largest. You keep making the minimum payments toward all of the accounts, but any extra money goes toward the debt with the smallest balance first. After you pay off the first debt, you move on to the next one, and so on. 

• Debt avalanche: If you follow the debt avalanche method, you focus on paying the debt with the highest interest rate first, rather than the accounts with the smallest balance. 

Which approach is best is dependent on your own habits and mindset. Some people prefer the debt snowball because they’re motivated by paying off individual accounts. By contrast, others prefer the debt avalanche method because it’s more cost-effective over the long run. Whichever strategy you choose, you can make progress against your debt and regain control over your money. 

3. Earn extra money

When you've identified a debt repayment strategy that works for you, you can implement your plan. To make extra payments toward your debt, you may need to increase your income. You don't necessarily need to switch careers or get a new job; you can earn extra money in your spare time. 

Working a side hustle just a few hours a month can help you pay off debt faster and save money over time, and you can work whenever it's convenient for your schedule. For example, you could deliver groceries, act as a virtual assistant, or provide customer support. 

You can find side hustles or part-time roles through SideHustleNation and SnagAJob. 

4. Find ways to reduce your bills

To free up more cash to repay your debt, look for any corners you can cut in your budget. From couponing to negotiating your bills, there are many ways to save money on your monthly expenses. 

For example:

• You could call your cable company and ask for a lower monthly rate or switch to a cheaper cell phone plan. 

• You can save money on your groceries by meal planning and cooking at home more than you currently do. 

• You can cancel unused apps and streaming subscriptions.

• You can get a roommate to slash your housing expenses.

5. Stick to a budget

Creating and following a budget can help you stay on top of your finances and pay off your debt by limiting unnecessary spending. A useful approach is zero-based budgeting, which allocates every dollar you earn toward specific expenses until you reach $0.

To make a zero-based budget, start by calculating your monthly income and then track all of your expenses for one month. Once you know where your money is going, you can designate a set amount of money for each category in your budget, including housing, transportation, food, and entertainment. You can dedicate some of your extra money toward your debt to pay it off faster. 

The Consumer Financial Protection Bureau has a free budget worksheet you can use to create a budget and track your spending. 

6. Stop using your credit cards

If you've had issues with overspending and credit card debt in the past, it may be best to stop using your credit cards altogether. Using cash or debit to pay for transactions can prevent you from making impulse purchases and racking up debt. 

To avoid using your credit cards, you can keep them out of sight in a drawer at home. It’s also a good idea to sign into your online accounts with your favorite retailers and delete your credit card information. Having to take the time to get your card and type in the information to make a purchase may make you pause and reconsider checking out. 

It can be helpful to think about what triggers the urge to spend. For example, let’s say you find that you make late-night impulse purchases online. You could make a rule for yourself that you can’t check out between the hours of 8:00 p.m. and 8:00 a.m. You may find that your shopping cart of must-have items isn’t so appealing in the bright light of the morning. 

7. Don’t just pay the minimum

When you have debt, paying only the minimum required can be tempting, but it can be a costly mistake. Thanks to interest charges, you can spend years repaying your debt and pay far more than you initially used. Paying extra toward your debt — even a relatively small amount like $10 or $20 extra dollars per month — can make a big difference. 

For example, let’s say you had $5,000 in credit card debt at 25% APR. If your minimum payment was $155, it would take 55 months to pay off your debt. And you’d pay a total of $8,380.86

But let’s say you paid an extra $20 per month, bringing your payment to $175. You’d pay off your debt in 44 months — nearly a full year sooner — and you’d repay a total of $7,676.51. By paying just a little more each month, you’d save about $700. 

You can use Experian’s credit card payoff calculator to find out how extra payments would affect the total cost of your debt. 

8. Look into debt consolidation 

If you are focused on becoming debt-free as quickly as possible, consolidating your debt with a personal loan or balance transfer credit card could be a good option. When you consolidate your debt, you replace your existing accounts with a new one with a lower interest rate. Thanks to the lower rate, more of your payments go toward the principal instead of interest charges, so you can pay off your debt and save money. 

However, debt consolidation isn't right for everyone. To qualify for a loan or credit card with APR, you will need a high credit score. If you’ve struggled with your payments in the past or regularly maxed out your credit cards, your creditors likely submitted that information to the major credit reporting agencies, and it may have negatively affected your credit. 

And debt consolidation doesn’t fix the issues that caused you to get into debt in the first place, and it could exacerbate the problem if you don’t have a handle on your finances. 

9. Talk to a credit counselor

There may be times when you’re so overwhelmed by your debt that it feels like there’s no way out. If you don’t know what to do next, consider meeting with a credit counselor with a non-profit credit counseling agency. Credit counselors can review your situation, help you create a budget and develop a plan to get out of debt. 

You may be a candidate for a debt management plan (DMP). With a DMP, you make one lump sum payment to the credit counseling agency and they disburse it to your creditors. The counselor will negotiate with your creditors on your behalf to lower the APR on your accounts or to waive late fees or added charges. Most people can use a DMP and pay off debt in under five years. 

Keep in mind that there are many scams out there that promise debt relief. When looking for a credit counselor, search for a non-profit credit counseling agency. You can find reputable help through the National Federal for Credit Counseling or by searching the U.S. Trustee Program’s database of approved credit counseling agencies. 

Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.