Home » Blog » Ways to Pay Off Debt

Ways to Pay Off Debt

April 28, 2016Debt

Life can be very expensive. Bills, mortgages, loans and credit cards can all help manage these expenses. However, these forms of debt can be restricting when interest rates cause our loans to be more than we can handle. In this article we’ll be reviewing ways you can pay off your debts, as well as ways we can avoid unnecessary debt.

Once you are in debt, it can be hard to get out of it. The average American carries a balance of approximately $3,600 on their credit cards. Most people will also have mortgage, auto, and unsecured loans that they have to pay for. If you only make the minimum payment on your loans it could take you a very long time to pay it off.  If you have accumulated debt, there are several options and methods that can be used to help decrease your debt.

If you have taken on a large amount of debt, first see if there is a way for you to:

  • Increase income
  • Decrease expenses
  • Sell excess assets

If none of these options are possible, there are a few other methods that can be used to help you get out of debt. These three methods are known as “The Debt Snowball Method,” “The Stacking Method” and Consolidation.

“Debt Snowball Method”

Debt Folders (SE)

The Snowball Method advises that you pay off the smallest source of debt first, in order to eliminate multiple payments. It is very important that while you make these payments, you don’t use the other forms of credit that you also intend to pay off. Let’s say you have two credit cards and a personal loan. We will assume that you have a balance on both of your credit cards. On the first card you owe $600, on the second card you owe $850, and you currently owe $1,130 on your loan. According to the Snowball Method, you will pay the minimum balance for all of them plus the maximum amount you can to the card with the lowest balance; which in this case will be the $600 card. Once you pay off the first card, you will move to the next one, while still paying minimum payments on all debts. The difference now is that you can pay the minimum payment on the second card plus the amount that would have gone to the first card that you’ve already paid off; along with any extra you can afford to pay. By doing this, you create a snowball effect as your payments get bigger and bigger. Once you pay the smaller balances off, you will have more money to pay off your bigger debts. This method works well because the success from paying off a card can motivate you to keep going.

“Debt Stacking Method”

The Stack Method is very similar to the Snowball Method with one big difference – you strive to pay the debts with higher interest rates first. For this method, you need to identify the interest rates on your loans and credit cards. After you identify the interest rates, you pay the debt with the highest rate first, then proceed to pay off the debt with lower interest rates. This method can help you save a lot of money, especially in the long run, since it allows you to pay the debts with higher interest rates first. A higher interest rate can cost you much more depending on the principal balance and how long it takes you to pay it off. The faster you can comfortably pay off a higher interest loan, the more money you will save.


If you have several loans and/or debt on multiple credit cards, another option is to consolidate all that debt into one sum. This allows you to stop paying high interest rateson five different loans and pay a lower interest rate on one loan instead. The only thing you need to pay close attention to is if the interest rate will actually be lower than the interest you are already paying. A HELOC or a Home Equity Line of Credit will collateralize your debt against your home. This will usually help you to have a better interest rate and will help consolidate credit. However, be aware of the additional risk that if you fail to pay your HELOC, you may be in danger of losing your home.

Debt Cards (SE)

If you feel that you can barely make the minimum payments on your loans, you may want to try making a budget. Budgets are beneficial because they provide the ability to see the flow of money between your income and expenses. This also allows you to make plans and arrangements for any extra money that is left over and begin to save.

For more information on how to create a budget please visit our article on how to make a budget that fits your needs, or customize your own budget spreadsheet.