How to Pay Off Debt

Female hands cutting a credit card with scissors.
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According to the Federal Reserve, Americans had a total outstanding credit debt of over $3 trillion at the end of the third quarter in 2017. With student loans at an all-time high, credit card usage on the increase and wages remaining sluggish, it’s easy to see how individuals and families find themselves struggling with debt.

But tackling debt takes a plan, and goal setting plays an important part. For the best results, you’ll need to establish your expectations and timeline so you can start making progress. Here’s what you need to know about best ways to pay off debt.

How to Pay Off Credit Card Debt

Although it’s convenient to use your credit card for anything from incidentals to monthly bills, debt can build fast — and it comes at a price. Discover how to break the cycle and banish your credit card bills by following these steps:

  • Start off by creating a budget. “The first step is to get a really good handle on your budget, expenses and income,” said Holly from “I highly recommend the app You Need a Budget. It helps you begin making decisions based on facts.” When you create your budget, you can allocate an extra amount to pay toward the credit card debt each month.
  • Transfer the balance. Natasha Rachel Smith, personal finance expert at recommended consolidating your credit card debt with a balance transfer card: “Before you commit to a balance transfer credit card, ensure you do some research to find a card with a longer promotional period, lower interest rates and low balance transfer fees. Never fall for the first offer and shop around for the best credit card that won’t add to your debt but instead make debt repayment more convenient.”
  • Implement the avalanche method instead of the debt snowball method. When you can’t get all of your credit card debt on one card, Cal Cook, consumer finance investigator at, recommended this strategy: “The avalanche method is always better than the snowball method, because it’s mathematically proven to reduce debt quicker. Paying off small loans first — snowball method — may provide comfort, but paying off high-interest loans first — avalanche method — will reduce the amount of money you spend on interest.”
  • Take out a personal loan. “Using a personal loan to refinance high-interest credit card debt is a great strategy,” said Nate Matherson, co-founder and CEO of LendEDU. “Interest rates on credit cards are almost always variable and as high as 29.99 percent. In contrast, personal loans in many cases have fixed interest rates. And personal loans can have interest rates as low as 3 percent.”
  • File for bankruptcy. Filing bankruptcy should be done only as a last resort, because it will negatively impact your credit for many years to come. Although bankruptcy doesn’t cover some debts, such as student loan debt, both Chapter 7 and Chapter 13 cover debt accumulated through credit cards.

Related: How to Get the Best Personal Loan Rates

How to Pay Off Student Loan Debt

With all of the options available to borrowers to defer or postpone loan payments, student loan debt — and the interest you pay — can go on for years. Here’s how to make it go away:

  • Refinance the loan. “Anyone with high-interest loans and good credit should look into refinancing their loans,” recommended Cook. “This can save thousands of dollars over the life of the loan, especially if the principal amount is large.”
  • Repay private loans before federal loans. “Individuals should work to repay private student loans before federal student loans,” said Matherson. “Private student loans almost always have higher interest rates. Moreover, private student loans do not come with the same protections offered by the Department of Education.”
  • Utilize student loan forgiveness programs. It might be possible for you to have your debt forgiven if you qualify for a student loan forgiveness program. For example, if you go into public service, the public service loan forgiveness program can wipe away any remaining balance after you’ve made 120 qualifying monthly payments. Teachers and those who suffer a permanent disability might also be able to get approved for loan forgiveness.
Make Your Money Work for You

How to Pay Off Medical Debt

Medical debts can often be overwhelming, but that doesn’t mean you shouldn’t pay. Find out your options to reduce your debt and pay it off:

  • Cut costs wherever possible. According to Smith, “The best way to tackle down debt is by reducing expenses such as rent and cutting costs on everyday expenses like cable, commuting and food. Take a hard look into your daily expenses and limit your spending by packing a lunch every day, trading cable for Netflix and carpooling.”
  • Borrow from your 401k plan. “Borrowing from your 401k or other retirement plan isn’t like any other loan,” said Eric Meermann, certified financial planner and vice president of Palisades Hudson Financial Group. “It doesn’t involve a lender. Instead, you can access your account without paying tax or penalties as long as you pay back the loan on time,” he said. Using this strategy, you can put the money toward medical debt and then work on replenishing the 401k account.
  • Take advantage of hospital payment assistance programs. Contact your state’s department of health and inquire about their hospital payment assistance programs. New Jersey, for example, has a Charity Care program that will pay part or all of an individual’s hospital bills if eligible.
  • Negotiate for a reduced bill. According to CBS’ MoneyWatch, hospital billing departments are willing to negotiate a reduced bill to avoid going through the collections process.

Check Out: 10 Ways to Cut $500 Off Your Monthly Bills

How to Pay Off a Car Loan

Almost from the minute you drive off the car lot, your car’s value starts to depreciate. It makes sense to pay this type of debt off as soon as possible. Here’s how:

  • Earn some extra cash to put toward the car loan. “In today’s generation, if you have a car and a valid driver’s license and insurance, then you can easily get a side hustle to generate a second income,” said Smith. “Generating extra cash to throw at your debts is the best way to pay down debt faster without going over your budget or living on a tight expense plan.”
  • Make biweekly payments instead of monthly. When you make half of a car payment every two weeks, you’ll end up making 13 payments per year instead of the traditional 12. Not only will that save you interest, but you’ll also be able to pay off your loan early.
  • Round up your payments. Lending Tree recommends rounding up your car payments to reduce the length of the loan: A car payment of $209 at a 5 percent interest rate will be paid off 13 months ahead of schedule simply by rounding the payment up to $250.
  • Apply your tax refund. Many individuals use their tax refund to purchase a car. If you already have a car, you can use your refund toward the principal of your vehicle loan and eliminate the debt ahead of schedule.
Make Your Money Work for You

Learn: 6 Fastest Ways to Pay Off Your Car Loan

How to Pay Off a Personal Loan

Paying off a personal loan in a timely manner can improve your credit. It also opens up the opportunity to apply for another loan if you need it. Use these tips to pay off your loan:

  • Don’t neglect goal setting. “It’s important to set goals and stick to them,” said Cook. “People who set budgeting and debt goals are more likely to succeed than those without a plan. Make conservative goals so that it’s easier to stick to them and you don’t feel like giving up when you don’t hit your goal one month.”
  • Use bonuses and raises to pay down the debt. Nate Masterson, director of finance at Maple Holistics, said, “When you are given a chunk of money, it should definitely be used to cover debts. This makes sense on many levels. Even though it is very tempting to spend it on yourself and your family, some things take precedence, and debt is one of them.”
  • Sacrifice something. “If you’re struggling with debt, it’s time to prioritize,” said Rachel Cruze, New York Times best-selling author and daughter of finance guru Dave Ramsey. “Something’s got to go. Your budget will tell you where you’re overspending. Is it the eating-out habit? The monthly purchase of another $500 purse?”

Although thinking about debt isn’t pleasant, it’s best to deal with it as soon as possible. By implementing some of these suggested strategies, you’ll soon be celebrating your paid-off debts instead of staring at piles of unpaid bills.

Up Next: This Couple Paid Off $5,000 in Debt on One Income in One Month


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