Eight Steps to Organize and Pay Off Your Debt
According to the latest data , the average total debt of consumer households last year was $105,056—a 13% increase over the past five years. When it comes to learning strategies and tips for paying off debt, it’s easy to get lost down the rabbit hole. And that rabbit hole can distract you from the real work of organizing and tackling your debt.
By taking the first steps toward a clear plan and system—even just by reading this article—you can feel more in control and begin to make some progress toward becoming debt-free. If you’re worried and feeling overwhelmed by debt, here are the first steps to take so you can get organized and make real progress.
Know what you have to
Before you can solve your debt, you need a complete picture of what you’re facing. Here are the first actionable steps you can take:
-
Gather all statements for all your debts (credit cards, student loans, medical bills, personal loans).
-
Create a master list with the creditor’s name, balance, interest rate, minimum payment, and due date for each debt.
-
Check your credit reports to make sure you haven’t missed any debt.
-
Keep this information in one accessible place—in a spreadsheet , notepad , or budgeting app.
Enter your interest rates
To prioritize your debts, list them by interest rate . If you can’t tell yours, it’s time to log into your accounts or check your latest statement to get the exact interest rate for each balance you have. If you do this now, you can develop a strategy to pay off that debt faster.
Select payment method
Once you know your interest rates, you can strategize your payment plan using either the snowball or avalanche method.
The Avalanche Method prioritizes high-interest debts first, helping you pay less interest over the long term by paying off higher-interest debts as quickly as possible. The main advantage of debt avalanche is that it saves the most money in the long run because it targets the most expensive debt first. This can be especially helpful if you have one or two debts with significantly higher interest rates than the others. If you eliminate them first, it can make a big difference in the total amount you owe.
The snowball method , on the other hand, focuses on paying off your debts in order from smallest balance to largest. The idea is that earning “wins” by paying off small debts quickly can provide much-needed motivation to keep going. The main benefit of the debt snowball is the psychological boost you get from crossing debts off your list one by one. This can be incredibly powerful, especially if you have a lot of small debts that seem overwhelming. Paying them off as quickly as possible can give you the impetus to continue tackling larger debts.
Never miss a payment
Even if you only make the minimum payment on your balance to begin with, make sure you pay every bill on time, every time. Missing this date could result in both a late payment fee and a penalty in April, meaning you could be paying up to 30% interest instead of the normal interest rate for a while. Dealing with this penalty interest rate can significantly set back your payment plans.
To make it easier to avoid payment disasters, set up automatic payments . You can always make additional payments if you are able to pay more than the minimum amount, or adjust the amount of your monthly payments. And if your debt is in the balance transfer promotion period (more on that on the next slide), you’ll want to make sure you can pay off your entire balance within that period with 0% interest.
Consolidate your debt or transfer the balance
If you’re having a hard time paying off more than the minimum on your debts, consider taking steps to lower your interest rates. There are two main ways to do this if you don’t feel like asking each of your creditors to negotiate:
Consolidation: Debt consolidation makes sense if you can save money in the long run by securing a higher interest rate, or if streamlining will allow you to make payments on time. And remember, consolidated debt is still debt that needs to be paid off as quickly as possible.
Transfer: Check with your credit card issuer for 0% interest balance transfer offers, which allow you to transfer your balance from another debt source to your checking account. Zero interest offer periods can last from nine to 18 months.
Forget about receiving rewards
Reward settings and sign-up bonuses allow people to spend more than they bargained for. If you’re in debt, now is not the time to try to optimize your credit card usage to get maximum rewards. This is especially important if you have cards that charge an annual fee.
If you have rewards cards in your wallet, convert your balance to a statement credit to reduce your balance.
Ask for help if you get stuck
If you’re having trouble making minimum debt payments due to financial hardships such as job loss, you may want to ask your lender if they have a customer assistance program. You may be able to defer payments for a few months until you get back on track.
You can also get a second opinion on your debt repayment plan, whether your monthly budget is in a tight spot or you’re just feeling stuck. Credit counseling organizations are typically non-profit groups that provide consumers with a range of money management services and educational resources. Their advisors are certified professionals who can give you expert and objective advice on how to handle your specific financial situation. All the money you pay goes directly toward your debts, but there may be additional costs associated with using such a program. There is often an installation fee of up to $75 and an ongoing monthly fee of $25 to $75.
Prepare for failure
Life happens – stay organized even when problems arise. Know which bills may be temporarily reduced if finances become tight, and have contact information for creditors ready if you need to request a hardship accommodation. Review and adjust your plan quarterly to stay realistic and on track.
Organizing is not a one-time event, but an ongoing process that supports your financial goals. With these systems in place, you’ll build momentum to pay off your debt once and for all.