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Paying Off Debt

Being in debt can feel crippling and, unfortunately, is a reality for a lot of Americans. According to Debt.org, the average American has over $90,000 in debt1 across all debt products, including credit cards, mortgages, student loans, and more. It can feel impossible to get ahead when you’re facing such large numbers, but there is a way out of it. Here are some strategies you can use to pay down your debt so you can move on to accomplishing your financial goals.

Pay More Than the Minimum

The key to paying off your debt is to pay more than just the minimum payment. While paying the minimum payment will keep your debt current and out of collections, it could take you a very long time to pay off the debt if that’s all you pay each month. To help speed up the process, pay a little extra each month on top of your minimum payment, even if it’s just a small amount. It’s usually best to work on one account at a time, otherwise it will be harder to make progress and could feel discouraging. Be sure to continue making your minimum payments on all accounts, but pick one account at a time to pay extra on. Once that account is paid off, you can move on to the next one. If you can, take the money you were using from the first account and add it in to the money you’re using to pay off the next account to help pay off each account faster. Next, we’ll go over some strategies you can use when deciding the order to pay your accounts to build a process to help you stay on track.

Small Balances First

One strategy you can use when paying off debt is to start by paying off your smallest balance first and working your way up to your largest balance. This method is commonly known as the snowball method2 because as you pay off each account, you’re building momentum as you move on to the next one. Paying off debt can take a while, making it easy to feel as if you’re not making progress. By starting off with your smallest balance first, you’ll see results a lot faster, and if you roll over funds you were using to pay the first account into the second, the snowball effect will be greater. As you see your balances decrease, and eventually disappear, you should feel more motivation to keep going. Hopefully, this snowball of motivation will keep pushing you forward and make it easier for you to tackle your larger balances once you get to them.

Large Balances First

While some prefer to start by paying off their smaller balances first, you could choose to go to the other way and start with your largest balances instead. Accounts with larger balances tend to have a bigger effect financially. These accounts will likely have larger payments due, accrue more interest than smaller balances, and have a bigger impact on your debt-to-income ratio which affects your credit score. It will certainly take longer for you to see results if you start with your largest balances rather than your smallest ones. However, if you can stay motivated and stick with it you should see a bigger impact to your finances once you’ve paid them off. Since your payments on larger balances are probably higher, rolling over the funds you were using to pay the larger balances into paying the next one should make it easier for you to pay accounts off as you work your way down.

Highest Interest Rates

No matter what the balance is on an account, the higher your interest rate the more you’re paying for that account. As such, rather than focus on paying off your debt based on their balances, you could choose to focus on their interest rates instead. Even if the balance on the account is smaller than other accounts, if it has a higher interest rate then you’re paying more the smaller balance in comparison to a lower interest rate on a higher balance. This method might feel a bit all over the place but paying your debts off in this manner could save you more money as you slowly get rid of your high interest rate accounts. Since you’re working from the top down with this method, it’s commonly known as the avalanche method.3 Though it may take more time to see results compared to the snowball method, you’ll see some big savings as you cut down on your interest charges.

Track Progress

Paying off debt can be a slow, painstaking process and it can be easy to lose motivation. To combat this, we recommend tracking your progress so you can see what all you’ve accomplished. Start by creating a spreadsheet listing all your accounts and their balances. From here, you can map out a payment schedule so you can see when each account should be paid off. Seeing an end date on your list can help keep you motivated to continue chipping away at your debt. You can also keep track of how much you’ve paid toward each account and keep a running monthly balance for each so you can see how much you’ve already paid down. As they say, hindsight is 20/20 and it can be encouraging to see how far you’ve come.


1Fay, Bill. (2023, Apr 3). Retrieved from: https://www.debt.org/faqs/americans-in-debt/demographics/#:~:text=The%20average%20American%20has%20%2490%2C460,18%20to%2023)%3A%20%2416%2C043

2Ramsey Solutions. (2023, Apr 21). Retrieved from: https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works

3Tardi, Carla. (2023, Apr 3). Retrieved from: https://www.investopedia.com/terms/d/debt-avalanche.asp