So, you have some debt to pay off. The first step to tackling your outstanding bills is to gather all the information — how much you owe, to whom, and what you’re currently paying.
“Get real, find out how much debt you really owe and what the terms are,” said Sarah L. Carlson, a certified financial planner and founder of Fulcrum Financial Group in Spokane, Wash.
From there, Carlson continued, the game plan is to systematically pay down your balances. She recommends setting up automatic debits from your checking account or rerouting a portion of your paycheck so you don’t have to think about it.
But how do you allot your payments if you have multiple outstanding balances? There are a number of options for tackling debt — read on to find out which one fits your specific needs.
6 strategies for tackling your debt
Regardless of which debt-repayment method you use, you’ll want to make at least the minimum payment on every account. But how you divvy up any additional funds beyond that will depend on the strategy you choose.
|Strategy||How It Works||Who It’s Best For|
|Debt snowball||Pay down your smallest debt first||Those who need fast and frequent wins to stay motivated|
|Debt avalanche||Pay off your debt with the highest interest rate first||Those who have extra income and who are intrinsically motivated|
|Debt snowflake||Make small payments on all of your outstanding bills as often as you can||Those who struggle to budget for payments|
|Debt consolidation||Pay off your debt using a loan or balance transfer card||Those who qualify for reasonable rates and who are paying a lot in interest and fees|
|Lump-sum payments||Save up to make a single large payment on your debt||Those who have lower interest debt (like a mortgage)|
|Hybrid||Combine methods based on your individual priorities||Those whose needs don’t fit neatly into a single strategy|
With the debt snowball method, you prioritize paying off your debt with the smallest balance first.
This means you’ll make the minimum monthly payment on all of your accounts and then put any extra funds toward your smallest debt. Once that’s paid off, you’ll move on to your next-smallest, and continue on until you eliminate them all.
The debt snowball likely won’t save you any money — since some high-interest debt may be lower on your priority list — but it does help you stay motivated, as you’ll experience small wins more frequently. In fact, according to a study from the Kellogg School of Management, those who use the debt snowball method are more likely to pay off all of their debt than those who opt for an alternate strategy.
Another perk of the debt snowball: You may have more cash on hand as you pay off each debt and eliminate those monthly payments. You can then save for emergencies or reinvest those dollars into paying off your remaining debt more quickly.
- You get a quick win to kickstart your commitment
- It builds discipline for paying off debt
- You might free up more cash quickly
- It may cost you more in interest over time
- It may take you longer to pay off all your debt
- You may be tempted to spend the extra cash
The debt avalanche is similar to the debt snowball, but instead of tackling your smallest debt first, you focus on the account with the highest interest rate. This strategy is more likely to save you money over time and might help you become debt-free faster.
If you are motivated by what you’ll save in the long term or have extra income to put toward your bills, the debt avalanche may work best for you.
That said, this method can sometimes be discouraging. Depending on your situation, it could take longer (months or even years) to pay off a single high-interest balance, which means you won’t see much progress at first.
If you decide to go with the debt avalanche but need some motivation to stick with it, figure out exactly how long it will take you to be debt-free. You can use our debt snowball versus debt avalanche calculator to compare how long each strategy would take to complete.
- You save on interest
- You might pay off your total debt more quickly
- You don’t get the emotional benefit from quick wins
- It’s easier to get discouraged
The debt snowflake isn’t quite as methodical as other approaches to debt repayment. With this strategy, you make smaller payments more often — ideally to cover at least the minimum payment on all accounts every month.
This means that you don’t prioritize any one account over another, and you don’t make a lump-sum payment toward each bill once a month. Instead, you pay $2 or $10 or $50 when you can until you cover the minimum due. If you do have additional cash in a given month, you can make a larger payment on a single debt.
If you struggle to budget for monthly payments, the debt snowflake method may help you chip away at your debt at a more manageable pace.
- You don’t have to budget for big payments
- This method can be difficult to keep track of and stay committed to
- You may get hit with fees if you pay less than the minimum
Debt consolidation involves taking out a new loan or applying for a balance transfer credit card to pay all of your outstanding debt. Instead of chipping away at your debts individually, you’ll make a single monthly payment on your new loan or card.
For this method to be most effective, your new loan or balance transfer card should have a lower interest rate than the combined average of your current accounts, so that you’ll save money over time.
Compare Debt Consolidation loans
Debt consolidation may also be a smart choice if your outstanding debts are racking up finance charges and fees, or if you have too many payments to keep track of. Because you’re dealing with a single creditor rather than a half dozen, you may be able to stay more organized and make on-time payments so you don’t incur fees or take a hit to your credit.
Personal loans, balance transfer credit cards, home equity loans and home equity lines of credit are all options for debt consolidation.
Use our debt consolidation loans page to find and compare loan offers to consolidate your debt. Keep in mind that you aren’t guaranteed offers or preferred interest rates when you use this page.
- You may save on interest and fees
- You may get a lower — or more predictable — monthly payment
- You only have to make one payment
- Some loans and cards have origination and transfer fees, respectively
- Balance transfer cards may charge deferred interest
- You may be in debt longer (if you take out a longer-term loan)
If your primary debt is your mortgage, you may benefit from the emotional boost of lump-sum payments.
As Carlson explains, clients who want to pay off their lower-interest, long-term debts — like their home loans — more quickly can save up a large sum and make a single payment to put a big dent in what they owe.
“Rather than putting aside an extra hundred dollars a month, they save up $10,000 to whack off the debt because that is more satisfying and makes more progress emotionally,” she said.
This strategy likely works best if you are able to set aside more than your monthly payment without compromising the rest of your budget or debt payments. Carlson also cautions that for credit cards and other high-interest debt, you’re better off chipping away at your balances right now.
- You’ll get an emotional boost
- It can help you pay down your debt faster
- You’ll need cash to set aside
- It can cost you money on interest, especially with high-interest debt
If none of these methods are quite right for your situation, you may prefer to combine them or start with one strategy and then adjust as you pay down your debt.
For example, a balance transfer credit card with a 0% APR introductory offer may be the best way to consolidate your high-interest credit card debt — after which, you tackle your remaining bills using the debt snowball method. Or you start by paying off one low-interest debt with a small balance so feel like you’re making progress and then switch to the debt avalanche.
You can also be flexible based on your unique needs. Maybe your financial situation changes. One account may require immediate attention, or perhaps you have a strong emotional attachment to paying off another more quickly.
- You can customize your approach
- It may overcomplicate your repayment plan
The bottom line
Which debt repayment strategy is right for you will depend on your specific financial situation and your preferences. If seeing regular progress helps you stay committed to the end goal, you’ll likely need a different approach than someone who is motivated by overall savings.
“It really is about behavior and tying emotions to it, I believe,” Carlson said.