High-interest debt can feel like a financial anchor, holding you back from reaching your goals. Instead of having the magic of compound interest work for you, it works against you. Whether it’s credit card balances, student loans, or auto loans, the more you pay in interest, the harder it becomes to make meaningful progress. With a focused plan, as outlined below, you can take control of your finances and eliminate this burden.
1. Assess Your Debt
The first step in tackling debt is understanding exactly what you owe. Create a list of all your debts, including the creditor, total balance, interest rate, and minimum payment for each. This snapshot will give you a clear picture of where you stand and help you prioritize. You can’t attack a problem until you understand the scope of the problem!
2. Build a Budget That Works for You
Take a close look at your income and expenses. Identify areas where you can cut back—whether it’s eating out, streaming services, or impulse purchases—and redirect those savings toward your debt. Budgeting ensures that you have a plan for every dollar and maximizes the amount you can allocate toward repayment. Don’t worry, you can loosen the reigns once this debt is paid off!
3. Create a Small Emergency Fund
Before aggressively paying off debt, set aside a small emergency fund so you don’t have to rely on credit cards when unexpected expenses arise. This buffer gives you peace of mind while keeping your repayment plan on track. Buffers can be as little as $1,000, or as high as our recommended emergency fund of 3-6 months of expenses. Do what makes you comfortable as you begin attacking this debt.
4. Pay down debt!
Once you have your debts listed, your budget optimized, and your emergency fund filled, it’s time to start paying off the debt!
Debt Payoff Strategies
When it comes to paying off multiple debts, there are two popular methods utilized: the debt snowball method and the debt avalanche method. Each has its strengths, and choosing the one that works best for you depends on your mindset and financial priorities.
The Debt Snowball Method
With the debt snowball method, you start by paying off your smallest debt first while making minimum payments on the others. Once the smallest debt is gone, you take the money you were paying on it and roll it into the next smallest debt. This process continues until all debts are paid. Similar to a snowball rolling down a hill, the payments get bigger and bigger as you pay off each debt, allowing you to progress.
The biggest advantage of the snowball method is the psychological boost it provides. Paying off a debt—no matter how small—feels like a victory, and those wins build momentum to keep you going.
The Debt Avalanche Method
The avalanche method, on the other hand, focuses on paying off the debt with the highest interest rate first, regardless of its balance. By prioritizing high-interest debt, you minimize the total amount of interest paid over time.
This method is mathematically the most cost-effective and can save you hundreds or even thousands of dollars in the long run. However, it may take longer to see progress if your highest-interest debt also has a large balance.
Which Method Should You Choose?
Both methods work, but success depends on sticking with the plan. If you’re motivated by quick wins, the snowball method might be the best fit. The avalanche method makes more sense if you’re driven by logic and long-term savings.
The key is to start—and stay consistent. High-interest debt doesn’t have to define your financial future. By taking intentional steps and choosing a repayment strategy that aligns with your personality, you can regain control, reduce stress, and move toward a life free from the weight of debt.
The sooner you begin, the sooner you’ll experience the freedom of being debt-free.
