5 Things To Avoid When Paying Off Debt, According to Rachel Cruze
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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If there’s one thing many Americans have in common it’s that they carry debt. In fact, the average consumer debt grew 4.3% between the second quarters of 2023 and 2024, according to the Federal Reserve Bank of New York.
Whether you’ve got high-interest credit card debt, student or car loan debt or any other kind, you may be looking to get out from under it as quickly as possible, which can lead to rash decisions, according to finance expert Rachel Cruze, a certified financial coach with Ramsey Solutions.
Cruze explained what to be careful about doing when paying off debt in a recent TikTok video. Here are the mistakes you should avoid.
Shortcuts of Any Kind
Despite an endless supply of allegedly expert advice on ways to get out of debt quickly, Cruze warned, “When you’re getting out of debt, there is no real shortcut.” The fastest way to get out of debt is the least exciting.
Debt Consolidation and Settlement
Two steps to consider skipping while repaying your debts are consolidation and settlement.
Some people opt for debt consolidation because it can allow you to pay a lower interest rate. However, Cruze said this may not solve the problem because “going into debt isn’t really a math issue; it’s a behavior issue.”
If you don’t stop the habits that lead to debt accumulation, she warned, you’ll be stuck in an endless cycle.
Similarly, debt settlement, where you negotiate to pay less than you owe, may give you temporary relief, but, she warned, “It will trash your credit.”
401(k) Loans
While it may be tempting to draw upon a loan from a company 401(k) plan, Cruze said this is also not a great strategy because not only are you “unplugging from your retirement” but if you leave the job you’re at, you have to pay it back right away.
HELOC’s Are Not Free Money
Another common approach is for people with earned equity in their homes to use a home equity line of credit (HELOC) to take money out and use it to pay off debt. Cruze said this is just “moving your debt around to a larger debt and borrowing on your home.”
Again, if you can’t pay that HELOC back, you’re in the same boat, and now you’ve put your home at risk.
Do This Instead
The answer, Cruze said, is unexciting but effective: “Just doing the work and paying it off is where you’re going to see the most progress.”
She recommended you pay off your smallest debt first and then move up to your largest, and goes against some conventional wisdom, stating that you should not necessarily pay off your highest-interest debt first, because, she reiterated, “It’s not a math problem, it’s a behavior issue.”
By taking a dedicated and concerted approach to paying off debt, she said, “We find people are getting out of debt in 18 to 24 months.” And this is during times of high inflation, high prices and so on.
Attitude Is Key
Cruze said that when you shift your attitude from helplessness or panic to one in which you trust that you have the ability to change your money situation and future, you can do amazing things.
“You are the secret of getting out of debt.”
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