5 Worst Ways To Pay Off Debt, According to Rachel Cruze

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Many people try debt pay-off methods that don’t work effectively. Rachel Cruze, a Ramsey Solutions personality and financial expert, said some debt pay-off methods are better than others. She recently posted a video about the worst ways to pay off debt, and she gave suggestions on what to do instead.

There are many people who have high-interest debt. In fact, the most recent Federal Reserve data showed that the amount of outstanding credit card debt in America has increased to $1.2 trillion. This shows many people are currently struggling with inflation, increased prices on household goods, and are living paycheck to paycheck.

Finding the right strategy can help people improve their finances, pay off debt and reach their money goals. Here are some of the worst ways to pay off debt, according to Rachel Cruze, and what to do about them.

Debt Shuffling

Debt shuffling is when people move debt or refinance it to get lower rates. While it might seem like making progress, Cruze said it’s problematic because it gives people a false sense of progress.

Here are some examples of debt shuffling:

• Debt consolidation: This is when people roll multiple debts into one. It can streamline payments, but Cruze said it doesn’t help develop better spending habits.
• Getting a personal loan: Taking out a personal loan to pay off credit card debt is a tactic many people use because it can help lower their interest rates. Rachel Cruz says this is trading one type of debt for another and cautions that some personal loans charge high fees.
• Opening a Home Equity Line of Credit (HELOC): With this type of financing, homeowners can use their house as collateral to tap into its equity. The downside of a home equity line of credit is that if someone misses a payment, it’s possible the lender can foreclose on their house. So, while it seems like easy access to money, there are downsides.
• 401(k) loans: Some employers offer 401(k) loans where employees can borrow against their own retirement accounts. The downside to this is that if they lose their job, they have to pay the loan in full right away. Additionally, they lose out on quality investment time.

2. Using the Debt Avalanche Instead of the Debt Snowball

The debt snowball method is what the Ramsey Solutions team recommends. That means paying off debt from smallest to largest regardless of the interest rate. Rachel explains that this can help to build momentum and have quick wins, which can encourage people to stay the course. This usually appeals to those more focused on the numbers and mathematical wins rather than emotional wins.

The debt avalanche method is something that other financial experts recommend. Erika Kullberg, a personal finance expert with millions of followers, said she used the debt avalanche method to pay off her law school debt.

3. Using a Debt Settlement Company

Many people use debt settlement companies without realizing the drawbacks. The biggest downside is that they have to stop making payments in order to work with a debt settlement company. This can cause their credit score to drop. 

It’s also possible that people could receive collections calls, legal actions and additional fees. Instead, consumers should contact their creditors directly, ask for payment plans and work hard to settle debts on their own.

While it might seem helpful to hire a company to negotiate, people can also negotiate for themselves.

4. Not Going Scorched Earth

One of Cruze’s philosophies is that if people have debt, they should go “scorched Earth.” She suggested canceling subscriptions, not making luxury purchases and not eating out.

Going to scorched Earth can be challenging, but she explained that people don’t have to live like that forever. Instead, she says to make temporary sacrifices, work extra hours and stick to a budget to drastically speed up a debt pay-off plan.

5. Not Giving While Paying Down Debt

Even if people have a significant amount of debt, Rachel believes that everyone should make giving a part of their monthly budget. She says the reason for this is because it gives people an abundance mindset rather than a scarcity one. Even if someone gives a small amount, this is something that can help them feel good while going through the debt pay-off process.

Share This Article: