How to pay off your debt in 7 steps : Life Kit (2024)

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Angela Hsieh/NPR

Angela Hsieh/NPR

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Our brains seem almost designed to get us into debt. Some 50% of people with credit cards don't pay them off every month, meaning millions are paying high interest rates on their debt.

On the other hand, if more money than usual has been piling up in your checking account, then this might be the perfect time to start tackling those credit card balances or other debt.

"The most important thing you need to do when you have a lot of debt is to forgive yourself," says Washington Post columnist and author Michelle Singletary, "because you need to take that step first so that you lay the groundwork for success."

Here are seven tips to get out of debt.

1. Stop spending at random and make a plan.

It's too tempting to spend money in the moment if you don't have a plan in advance. Setting financial goals — whether you want to save up for a purchase, or simply get by week-to-week — can help you feel like you have something to work toward.

"You absolutely need a plan," says Singletary. "If you don't have a plan, you're most likely going to fail."

2. Choose a plan — are you a "snowball" or "avalanche" person?

With the avalanche method, list your debts with the highest interest rate ones at the top and pay those first, keeping up with minimum monthly payments on the others at the same time.

"You'll be much better off from an economic perspective paying off that highest interest-rate debts first, because essentially you'll have less total debt to have to pay off over time," says Abby Sussman, a professor at the University of Chicago who studies the psychology of financial decision-making.

The snowball method relies less on math and more on motivation. Make a list of debts from smallest to largest. Pay off the smallest debt, and boom! You get a win.

"What the studies show is that when people have immediate progress, that they get rid of some debt, that energizes them," says Singletary. "That encourages them." Those small wins help you build momentum, like a snowball rolling down a mountainside.

3. Make a budget and cut spending.

"You can spend less, or you can earn more," says Sussman.

During the COVID-19 pandemic, earning more isn't much of an option for most of us — so spending less is probably the way to go.

• Leave credit cards at home — research supports the idea that people will spend less when they're using cash.
• Use the envelope method — put the budgeted amount of cash in designated envelopes to limit purchases.
• Don't just focus on the small stuff — go after the big-budget items, like your rent or mortgage. Reexamine your living situation — can you live with parents or roommates?

4. Try a "spending fast" — you'll start to crush your debt and learn a lot too.

A drastic reduction in spending can be grueling but effective, and it carries an additional benefit: By the time the fast is over and you've paid down substantial debt, you'll know what you can truly live without.

"So you start to only add back the things that matter to you," Singletary says.

5. Don't blow your tax refund — use it to pay down debt.

Resist the urge to spend unexpected windfalls, no matter how small. Research has shown that people tend to be more likely to take out loans to purchase cars right after they receive a bonus — and those people are more likely to default, Sussman says.

6. Be wary of debt consolidation.

If you clear your credit cards by consolidating your debt, the human tendency is to see credit cards waiting to be filled up again.

Also, while consolidating might lower your overall interest, personal finance experts believe those punishingly high credit card interest rates provide motivation to pay off debt as quickly as possible. Anything else, says Singletary, is just shuffling deck chairs on the Titanic.

7. Get one-on-one help from someone you can trust.

Look for a nonprofit counselor in your area — Singletary runs a debt counseling program at her local church, for example. You can find nonprofit counselors through The National Foundation for Credit Counseling website.

Sylvie Douglis published the audio for this episode, which originally published in 2019. You can listen to the original episode audio here.

We'd love to hear from you. Leave us a voicemail at 202-216-9823, or email us at LifeKit@npr.org.

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