Learn how to pay off your debt with these six simple steps.

Paying off debt can seem overwhelming, especially when the monthly payments start to become too much for your income. Juggling bills, putting off payments and dodging collectors is all extremely stressful. And financial stress has a way of completely taking over your thoughts, so it’s hard to focus on anything else besides your personal finance troubles. Luckily, you’re in the right place to learn how to pay off debt in the fastest way possible.

Here’s a quick overview of how to become debt free:

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Step 1: Prioritize debts for repayment

The first step to making an effective debt repayment plan is to know where you stand.

There are a few different methods of doing this. First, there’s the debt snowball method. The snowball method is a debt strategy in which you pay off your accounts in order from smallest debt to largest debt. Another method is the debt avalanche method. It encourages you to rank debt by interest rate, not by amount. This isn’t recommended for people on a tight budget, because the debts with the highest APR are often also the highest balances, making it difficult to make a dent in those balances. Additional methods include debt consolidation and debt management programs. For credit card debt lower than $5,000, you can also try a balance transfer.

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Here are some tips to help you prioritize:

  • Higher APR (interest rate) increases the priority for repayment.
  • Debts that can cause things like wage garnishment should be given the highest priority, like tax debt and federal student loans.
  • Old debts that are close to the statute of limitations should be given low priority.
  • Large, fixed-rate installment loans (like your mortgage) should be last.

Step 2: Define your goals for debt repayment

Review your debts carefully to find the best way to get out of debtFinding the right debt solutions often involves defining what you really need to accomplish.

The solutions you use to achieve the fastest repayment possible are usually not the same solutions you use when you need lower payments.


To start, rate the importance of the following:

  • Lower monthly payments
  • Fast repayment
  • Lower total cost
  • No credit damage

Step 3: Identify solutions that fit your goals

Keep in mind that if you have more than one type of debt, you may need more than one solution to pay it off effectively.

Some types of debt, such as student loans, often require separate solutions. So, if you have credit card debt and student loans, you’ll need at least two repayment strategies to solve your problem.

In some cases, you may use more than one solution for the same type of debt. For instance, if you have federal and private student loans, you may want one solution for federal and another for private. If you have one credit card that’s behind but the others are in good standing, you may settle that debt and use consolidation for the others.


Loans like a mortgage or an auto loan won’t be prioritized for repayment, but you might consider refinancing. That can help lower your payments and total costs over the life of these longer-term loans.

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Step 4: Implement your solutions and set up a budget

Once you start to identify solutions, you need to build a budget that focuses on meeting your new payment schedules.

If you don’t already have a budget in place, visit Debt.com’s Create a Budget page. If possible, set up savings as a scheduled expense in your budget. Ideally, you want to save about 5-10% of what you take home each month. That way, you can avoid taking on new credit card debt and can focus on repayment.

Savings should be treated as an expense, rather than just using whatever money you have left over at the end of the month. You determine how much you can save, then treat that as a bill you pay yourself.


You can save money and pay off your debt quicker by increasing your income. A side hustle, such as driving for Uber or starting some freelance projects, can give your savings account the boost of extra money it needs.

Step 5: Set milestones that help you avoid financial hardship

Emergency savings protects your budget and money against more debtIt’s critical that while you pay off debt, you need to limit taking on new debt as much as possible.

This means you need to set milestones and avoid taking on new debt until you reach them. There are two ratios that can help you determine if you’re in the right place to take on new debt:

  1. Credit utilization ratio
  2. Debt-to-income ratio

Credit utilization ratio: When you can start charging again

Credit utilization measures how much credit card debt you have relative to your total available credit limit. Anything above 30% is bad for your credit score and generally means that you’ve overcharged and need to cut back. Once your ratio drops below 30%, you can consider making new charges.

Debt-to-income ratio: When you can start borrowing again

Debt-to-income ratio (DTI) measures how much total debt you have relative to your income. You basically divide your total monthly debt payments by your total monthly income. In general, you want to maintain a ratio of 36% or lower. This will allow you to take on new debt without stressing your budget. Lenders check your ratio anytime you apply for a loan; most lenders won’t approve you if the loan puts your ratio over 41%. So, you give yourself a 5% pad, so you can take on new loans and get approved.

Step 6: Keep an eye on your credit as you go

All of this means that you need to watch your credit closely as you pay off debt.

You want to make sure:

  1. Account statuses are updated as you bring accounts current
  2. Your credit history shows all the payments as made on time
  3. Loans show as paid

If you simply want to wait until you finish your pay off plan, you can use free credit report downloads to review your credit once you’re done. If you want to track progress as you go, then you will need a credit monitoring service.

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Published by Debt.com, LLC