How to pay off debt

• ✺A clear payoff plan helps you make real progress instead of feeling stuck making minimum payments indefinitely.
• ✺Paying down high-interest debt can free up significant money each month that would otherwise go to interest.
• ✺Reducing debt improves your credit utilization and overall financial flexibility.

1. 1List all debts with balances, interest rates, and minimum payments.
2. 2Confirm you can cover minimum payments on everything each month.
3. 3Choose a payoff strategy: avalanche (by interest rate) or snowball (by balance size).
4. 4Direct any extra money toward your target debt while maintaining minimums elsewhere.
5. 5Once the target debt is paid off, roll its payment into the next debt in line.
6. 6Repeat until all targeted debts are paid off.

Debt avalanche

A payoff strategy that targets the highest-interest debt first to minimize total interest paid.

Debt snowball

A payoff strategy that targets the smallest balance first to build motivation through quick wins.

Debt consolidation

Combining multiple debts into a single loan or payment, sometimes at a lower interest rate.

Debt management plan

A structured repayment plan, often set up through a nonprofit credit counseling agency, that may include negotiated lower rates.

• ✗Trying to pay extra on multiple debts at once instead of focusing on one target at a time.
• ✗Missing minimum payments on other debts while focusing on a target debt.
• ✗Taking on new debt while in the middle of a payoff plan.
• ✗Closing a paid-off credit card right away, which can affect credit utilization and account age.
• ✗Choosing debt settlement without understanding the credit damage and possible tax consequences.

• !Forgiven debt from a settlement can sometimes be counted as taxable income — check current IRS guidance if considering settlement.
• !Balance transfer offers often include an introductory low or 0% rate for a limited time, followed by a higher standard rate — read the terms carefully.
• !Nonprofit credit counseling agencies can review your situation for free or low cost before you commit to a specific strategy.
• !Paying off a debt doesn't automatically mean you should close the account — keeping it open can help your credit utilization and history length.

• List all debts first, with balances, rates, and minimum payments.
• Keep minimum payments current on everything while targeting one debt with extra funds.
• Avalanche saves more on interest; snowball can build motivation — either can work if you stick with it.
• Consolidation and credit counseling can help, but settlement and bankruptcy have real downsides.

Totally optional. Nobody's grading you.

1. 1.List all your debts with balances, rates, and minimum payments.
2. 2.Pick avalanche or snowball and direct your next bit of extra money accordingly.

Related lessons:

• Understanding debt
• How loans work
• What happens when you miss payments

• Strategies for handling debt
  Federal Trade Commission (FTC)(opens in a new tab)
• Credit counseling
  Consumer Financial Protection Bureau (CFPB)(opens in a new tab)