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If you’re repaying a variety of different debts to different lenders, keeping track of them and making payments on time each month can be time consuming. It isn’t just tough to keep track of these various debts, it’s also difficult to know which debts to prioritize in order to fast track your debt repayment. After all, each of your cards or loans likely have different interest rates, minimum payments, payment due dates, and loan terms.

Consolidating — or combining — your debts into a new, single loan may give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit (ideally with a lower interest rate) and using it to pay off other debts — whether that’s car loans, credit card debt, or another type of debt. After consolidating those existing loans into one loan, you have just one monthly payment and one interest rate.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and what type of debt you wish to consolidate. Here are some common approaches.

Balance Transfer

If you are able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card may be one option to consider and can be a smart financial strategy to consolidate debt if you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates are typically for a limited time, so if you pay the transferred balance in full before it ends, you’ll reap the benefit of paying less — or possibly zero — interest.

However, there are some caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, sometimes 3% to 5% of the amount transferred. If you use the credit card for new purchases, the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it will be subject to the new, regular rate.

Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s value minus the amount remaining on your mortgage. If your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV is similar to equity, but on the other side of the scale: Instead of how much you own, it’s how much you owe. The percentage is calculated by dividing the home’s appraised value by the remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no more than 80%. In the above example, the LTV would be 42%.

$125,000 / $300,000 = 0.42
(To express this as a percentage, multiply 0.42 x 100 to get 42%.)

If you qualify for a home equity loan, you’ll typically be able to tap into 75% to 80% of your equity.

After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay your other debts.

A home equity loan is essentially a second mortgage, a secured loan using your home as collateral. Since there is a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into or you prefer not to put your home up as collateral, a personal loan may be another option to consider.

There are many types of personal loans, but they are typically unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s fairly easy to find a lender that offers fixed-rate personal loans.

Generally, personal loans offer lower interest rates than credit cards. So consolidating credit card debt with a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there is a payment end date, unlike the revolving nature of credit cards.

There are many online personal loan lenders and the application process tends to be fairly simple. You may be able to use a loan comparison site to see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard credit inquiry into your credit report, which may temporarily lower your credit score. The lower credit score may drop off your credit report in a few months.

If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay off your other debts. You’ll then be responsible for paying the monthly personal loan payment.

A drawback to using a personal loan for debt consolidation is that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. Other fees may also be charged, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees or penalties before signing the loan agreement.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Is Debt Consolidation Right For You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea If …

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. Using a home equity loan or a personal loan for debt consolidation will be useful for this reason because they are forms of installment debt.

•   You can qualify for a zero interest or low-interest rate balance transfer credit card. This may allow you to consolidate multiple debts on one new credit card and save interest by paying off the balance before the promotional rate ends.

Debt Consolidation Might Not Be For You If …

•   You think you’ll be tempted to continue using the credit cards you paid off in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fee or origination fee). If the fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period of time and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt with No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and are vulnerable.

Disreputable debt settlement companies may charge fees before ever settling your debt and often make bogus claims, such as guaranteeing that they will be able to make your debt go away or that there is a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences to your credit along the way. What’s more, a debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Recommended: Debt Settlement vs Credit Counseling: What’s the Difference?

Debt Relief: Is it a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get some assistance that will help you get out of debt for good and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, like credit cards, into a new loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.

SoFi personal loans offer competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Most of us have debt, whether that means a student loan, a car loan, a credit card balance, or a combination of these. Although there are plenty of good reasons to take on debt, such as affording your education, buying wheels to get to work, and charging clothes to wear on the job, face it: Debt has a way of piling up, and that interest can keep ticking northward.

To deal with debt, it’s wise to be proactive about paying it off. Luckily, there are plenty of great resources and techniques to help you create your debt payoff plan — but only you will know what’s best for your unique financial situation.

While none of this is meant to replace financial advice from a professional, here are a few tips to consider. They can offer solid advice on techniques to help crush your debt.

Customize Your Debt Payoff Plan Approach

The words “snowball” and “avalanche” might sound like an increasingly alarming day on the mountain, but they also apply to three popular debt payoff methods, one of which may be just right for you.

•   The snowball method entails paying off your debts in order from smallest to largest, regardless of their respective interest rates. By getting that smallest debt paid off quickly, you may well feel a surge of motivation to keep on going with your debt repayment plan.

But people using the debt snowball method, beware: Ignoring interest rates usually means paying more money in the long run.

•   If savings is your main priority, you’ll probably want to look at the avalanche method, which has you putting more money toward your higher-interest rate debt first. Not only does this avalanche method save you money, it can also help you get debt-free sooner.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Try a Debt Detox

People often compare getting fiscally fit with getting physically fit, and with good reason. Whether you’re trying to achieve financial goals or health and fitness goals, you’re more likely to succeed if you have a good plan in place, a fair amount of willpower, and a desire to change your habits.

You might try what’s known as a spending fast, and only buy necessities for a month or two (or longer) and see how much you can save. The funds you accrue can go towards your debt. Seeing that debt shrink can inspire you to keep going.

Or you might try a technique such as only using your debit card or cash, to help you avoid more high-interest credit card debt.

Amp up the Minimum

Another approach for a debt payoff plan is to pay more than the minimum payment each month. Whether you have student loans or credit card debt, paying more than the minimum can help accelerate your debt payoff journey.

It can be tempting to just stick with paying the minimum balance due rather than adding to it. But paying as much as you can each month (without stretching yourself too thin) can add up. In order to make this happen, however, you may have to make a few sacrifices.

Making coffee at home, cooking for yourself, or exercising outside instead of paying for a pricey gym membership are all small changes that can help save extra money each month to put toward your debt.

By increasing how much is allocated toward monthly payments, you could pay off your debt faster and therefore save on interest. And who wouldn’t want to be out of debt sooner?

Consider a Balance Transfer

Balance transfer credit cards sometimes offer low or 0% introductory annual percentage rate, or APR, periods for high-interest credit card debt transfers. Typically, you may enjoy 18 months of 0% interest, which can help keep you from accumulating even more debt via interest.

Reasons people apply for a balance transfer credit card include:

•   Having high-interest credit card debt

•   A desire to simplify payments on one card, rather than managing payments on multiple credit cards

•   Wanting to take advantage of a good promotional deal (for example, up to months of 0% interest).

But it is important to remember that this debt payoff strategy is optimal if you know you can pay off your entire debt by the time the low- or no-interest period ends. Otherwise, you will go back to accruing interest on your debt after the introductory period ends.

A credit card interest calculator can help you discover how much you are paying in interest alone on your credit card debt. This can help you evaluate how much you might save.

Recalibrate Your Rate

High-interest rate debt is not only expensive, it can also take forever to pay off. But just because your loan or credit card came with a rate that’s higher than you’d like doesn’t necessarily mean you’re stuck with it forever.

•   For one thing, if you have student loans, student loan refinancing is one option. When you refinance your student loans with a private lender, you are taking out a completely new loan with a new interest rate.

You can refinance both private and federal student loans with a private lender, but understand that if you refinance federal loans you will lose access to all federal benefits like deferment, income-driven repayment plans, and public service loan forgiveness programs. In addition, if you opt for a loan with an extended term, you may pay more interest over the life of the loan, so think carefully about whether it’s the right move for you.

If you have an improved financial profile from when you took out your original loan, however, you may be able to qualify for a lower interest rate. By obtaining a lower interest rate, you could save money over the life of the loan. Or you may be able to select a shorter term with higher payments but a quicker payoff — and save money on interest payments.

•   If you have high-interest credit cards, you can look into consolidating them with a low-interest rate unsecured personal loan. One plus of taking out a personal loan to consolidate your debt is that personal loans are typically installment loans, which means they have a fixed repayment period. That means you’ll know exactly when your loan will be paid off.

In contrast, credit card debt is “revolving debt,” which means you can continuously add to the debt even while paying it off. That’s not an option with a personal loan. By consolidating your credit card debt with a personal loan, you could also potentially qualify for a lower interest rate, which can make your debt easier to manage.

On the flip side, a personal loan may not be right for everyone. Some personal loans come with origination fees, late fees, or prepayment penalties, which could potentially drive up the cost of your loan. When shopping around for debt payoff solutions, you may want to consider any hidden fees that could come with a personal loan.

No matter what debt payoff plan you choose, the key is to take control of your debt rather than letting it control you. Ultimately, executing a successful debt payoff strategy might help you focus on the positive outcomes that happened as a result of your debt rather than the frustration of having to pay it back.

The Takeaway

Debt, especially when it’s the high-interest variety, can be hard to pay off. By trying such tactics as budgeting, reducing spending, and considering balance transfer credit cards and loan financing, you can likely get on a path to lowering and then eliminating your debt.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Americans are carrying a record amount of debt lately. Just last summer, the Federal Reserve Bank of New York announced that U.S. citizens hit a new milestone: $1 trillion in credit card debt. And when you look at overall debt, the number soars to an eye-watering $17 trillion, with the typical American having $21,000-plus in personal debt (not including mortgages).

Debt seems to be woven into everyday life. Yes, inflation is down from the scary heights of 2020 and 2021, but it’s still an issue for many. And the overall cost of living is climbing, too, which may be why Americans are taking on more debt. A person has to eat, right, and live their life? Debt can be what gets people through.

Taking a closer look at how debt is tracking by age can help as you examine your own situation and think carefully about how you will manage your own debt load.

Breakdown Of Average Debt By Age

Here, you’ll learn more about the latest Federal Reserve and U.S. Census Bureau data and what it reveals about how Americans are using credit. Overall, people in their high earning years (early middle age) carry the most debt, typically in the form of mortgages, while younger families carry more student loan debt. Let’s take a closer look.

Age 35 and under

Percentage of families with debt: 81%

Total median debt per household: $39,200

For the millennials, education debt reigns. Forty-four percent of young households hold student loan debt compared to 28.3% with mortgage debt. This tells us that people in this age range are likely putting off home ownership due to the burden of student loans. The median student loan debt was $18,500 while the mean student loan debt was $33,000. That can add up to a hefty monthly payment that could discourage taking on a mortgage loan as well.

Nearly half of millennial households are also carrying a credit card balance from month to month at a median of $1,400. Paying interest on high credit card balances can quickly eat away at income — and savings.

Age 35-44

Percentage of families with debt: 86.2%

Total median debt per household: $93,700

As you can see, families in this age range have taken on more debt. In this bracket, education debt has increased (median: $20,000) but the percentage of families with student loans has dropped to 34%. Instead, mortgage debt accounts for much of the overall debt increase. Fifty percent of households have mortgage debt in this age bracket, with a median housing debt of $93,700. Their credit card debt is climbing too, with 49% carrying a median $2,500.

These increases show that people in this age range are taking on more debt — likely because they’re earning more and doing more: they’re settling into their careers, buying houses, and starting families.

Age 45-54

Percentage of families with debt: 86.6%

Total median debt per household: $89,900

Most households that are firmly in middle age continue to hold debt, but the amount of debt is much less than younger households. Fewer hold student loan debt (24%, median: $20,000), and about the same number have mortgages (53%), but the amount they owe is less (median: $125,000).

There are a couple of possible explanations for this: one is that they’re earning more and have had more time to pay off their student loans and mortgages. The other is that this generation missed some of the soaring higher education costs that younger generations have had to grapple with.

They also likely entered the workforce and established their careers before the recession, while younger generations are more likely to have been hit hard by career-stalling hiring freezes and wage cuts as they were just starting out. In short, this generation and those in older households haven’t necessarily had to depend on financing as much as younger generations to get their adult lives started.

Age 55-64

Percentage of families with debt: 77.1

Total median debt per household: $69,000

This age bracket continues to see drops in overall debt. They owe less on their mortgages and even less on education loans. With fewer large expenses related to education, housing, and family rearing, households in this age bracket can focus on paying down debt and building savings as they prepare for retirement.

Age 65-74

Percentage of families with debt: 70.1%

Total median debt per household: $42,000

Households in this age range are likely beginning to or have begun their retirement. At this point, they are probably tightening their budgets to live on retirement savings, pensions, and social security. As a result, they’re spending — and borrowing less.

Despite lower mortgage and education debt, 42% of households are carrying a pretty high balance on credit cards (median: $2,500). This suggests that for smaller purchases, people rely heavily on this convenient, yet high-interest form of borrowing.

Age 75 and up

Percentage of families with debt: 49.8%

Total median debt per household: $20,600

Seniors in this bracket are most likely retired and living on a fixed income. At this point, a good rule of thumb is to have little to no debt. While there are fewer and lower levels of borrowing in this bracket compared to the others, close to 50% are carrying debt. While much of this is accounted for by small mortgages, some of it may be related to high cost of medical care and senior living facilities.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

How Much Debt Is Too Much?

Americans have clearly become accustomed to borrowing in order to move through their everyday lives. In fact, financing is often a necessary step in order to get the graduate level training needed for a professional career or to buy a home that will become a financial asset. But are we culturally becoming too comfortable with borrowing larger and larger sums of money? And how do you know when you’ve over-extended yourself?

One way to find out if you’re carrying too much debt is to calculate your debt to income ratio by dividing your monthly debt payments by your monthly income. For instance, if your total debt payments (student loan, credit card, mortgage, car loan, etc.) come to $2,500 per month and your after-tax monthly income is $8,000, your debt-to-income ratio would be 31.25%. That means that a little over 31% of your income goes straight to your debts.

As a rule of thumb, the lower your debt to income ratio the better: a ratio of around 30% is considered very good, while a ratio of 40% or higher could threaten your financial security.

Recommended: Which Credit Bureau Is Used Most?

How To Take Control Of Your Debt

Carrying debt is enormously stressful, especially if it keeps you from being able to save enough to feel financially secure. Here are some solutions if you’re looking for a strategy for paying down your debt.

Make a Debt Inventory

Start by listing out all of your outstanding debts and sorting them based on whether they are “good” debts (debts taken out to help build wealth or income potential like mortgages and student loans) or “bad” debts (high interest loans and loans to buy things that don’t appreciate like credit cards and auto loans). The bad, or high-risk debts will be the ones you’ll want to take on first.

Create a Debt Pay-Down Goal

Zero in on the loans that cost you the most (in terms of high interest, but also high stress). Then, set a realistic goal for paying it down — as well as a budget for how to swing the extra payments. For instance, you might cut back on some of your unnecessary spending for a set period of time, or choose to take on a side hustle to earn some extra income.

Consider Consolidating Your Debt

If you are carrying a high credit card balance or other high-interest debt, but have a steady income and good credit, you may be able to make your repayment simpler and cheaper by taking out lower-interest personal loans to pay off those debts. You can’t use an unsecured personal loan to consolidate student loan debt, but it can be immensely helpful if you’re trying to get out from under credit card debt.

Recommended: Can You Refinance a Personal Loan?

The Takeaway

Many Americans have debt, with younger people having more student debt and those in midlife having more in the form of mortgages.

If you’re concerned about managing your debt (especially from credit cards), you might consolidate your high-interest debt into one monthly payment, which might offer a lower interest rate that could help you get out of debt sooner.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Being debt-free can be a terrific feeling of freedom. However, many of us don’t know that sensation. According to Experian, the average American is carrying $101,915 in debt. And paying off the amount that you owe — whether it’s credit card debt, student loans, or something else — can be a considerable challenge.

While each person’s finances are different, there are smart strategies to pay off debt effectively and quickly. That will not only likely reduce your money stress and improve your finances, it can also free up funds to help you achieve some big-picture goals, whether that means funding a wedding or growing your toddler’s college fund.

Here, you’ll learn why it’s important to pay off debt, the best how-tos, and tips for managing debt as you work to shake it off.

Why Is It Important to Pay Off Debt?

Granted, not all debt should necessarily be paid off ASAP. There’s “good debt,” which is typically lower interest and can have a positive impact on your financial status. For example, if you have a mortgage, that is likely low-interest and it is helping you build equity and, by extension, your net worth.

However, there is also “bad debt” of the high interest variety, like credit card debt, which can wind up having a negative effect on your finances and your life. Some examples of why this kind of debt can be problematic:

•  It takes up funds that could otherwise be put towards long-term goals like retirement or short-term goals, such as a vacation fund.

•  It gives you more bills to pay.

•  It can cause you stress.

•  It can have a negative impact on your credit score, which can have further ramifications, such as making it more expensive to open other lines of credit.

•  It means you are subject to the lender’s decisions (such as raising your interest rate).

When you are debt-free, you likely don’t have to deal with those issues any longer. So here are smart debt payoff strategies to help you take control of your money.

💡 Quick Tip: With low interest rates compared to credit cards, a debt consolidation loan can substantially lower your payments.

1. Create a Budget

A budget can help you understand and create a plan for where your money is going. This is where you can start to figure out how to live within your means to avoid accumulating new or more debt in the future, such as credit card debt.

•  To start your budget, take an inventory of all of your after-tax income. If you have a job, simply look at your net paycheck and multiply the number by how many times you’re paid each month.

•  Next, tally up necessary expenses. These might already include debt payments such as your student loans or a car payment. They can also include rent, utilities, insurance payments, groceries, and so on.

•  Subtract this total from your income and what you have left represents the money available for discretionary spending. If the amount of money you’re spending on discretionary expenses exceeds the amount you have available, you’ll likely need to make some adjustments to how you spend.

•  To pay off debt, focus a portion of the available discretionary income on debt payments. One approach is known as the 20/10 rule, which says that you should put no more than 20% of your annual take-home pay or 10% of your monthly income towards consumer debt.

2. Set Realistic Goals

It takes a lot of discipline to get debt-free. Setting measurable and achievable goals can help you stay on track. Think carefully about how much money you actually are able to put toward your debts each month. Include factors like how much spending you can reasonably cut and how much you might be able to add to your income.

Don’t factor in extra income unless you’re sure you’ll be able to come up with it. Once you settle on your monthly amount, you can calculate how many months it will take you to pay your debt off.

For example, say you have $500 dollars per month to help you pay off $10,000 in credit card debt with a 19.99% interest. With an online credit card payoff calculator, you can determine that it will take you about 25 months to pay off your card. So, a reasonable goal might be two years to get out of debt, which even builds in a little wiggle room if you can’t come up with a full $500 in one of those months.

3. Try a Payoff Method

Once you’ve identified funds you can use to pay down debt, there are a number of strategies you can use to put that money to work towards different debts you’re shouldering.

The Snowball Method

Here’s how the snowball method of debt repayment works:

•  List your debts in order of smallest balance to largest. Look exclusively at the amount you owe, ignoring the interest rate.

•  Make minimum payments on all the debts to avoid penalties. Make all extra payments toward paying off the smallest debt.

•  Once the smallest debt is paid in full, move on to the next largest debt and so on. Use all of the money you were directing toward the previous debt, including minimum and extra payments, to pay off the next smallest. In this way, the amount you’re able to direct toward the larger debts should grow or “snowball.”

One downside to the snowball method is that while targeting your smaller debts first, you may be holding onto your higher interest debts for a longer period of time.

However, you should also theoretically get a psychological boost every time you pay off a debt that helps you build momentum toward paying all of your debts off. And if this extra push can help keep you motivated to continue eliminating debt, the benefits of this strategy might outweigh the extra costs.

The Avalanche Method

The avalanche method takes a slightly different approach:

•  List your debts in order of highest interest rate to lowest. Once again, commit to making minimum payments on all of your debts first.

•  Make any extra payments toward your highest interest rate debt. As you pay each debt off, move on to the next debt with the highest rate. The debt avalanche method minimizes the amount of interest you pay as you work to get debt-free, potentially saving you money in the long-term.

The Fireball Method

This is a hybrid approach to the snowball and avalanche methods:

•  Group your debts by good and bad debt. As noted above, good debts are those that help you build your future net worth, like a mortgage, business loan, or student loan, and typically have lower interest rates. Bad debts have high interest rates and work against your ability to save; think credit card debt. (Btw, credit card debt should always be characterized as bad debt even if you are taking advantage of a 0% interest promotion.)

•  Next, list your bad debts in order from smallest to largest based on balance size. Continue making minimum payments on all debts, but funnel extra cash toward paying off the smallest of the bad debts.

•  Work your way up the list until all your bad debts are paid off. You can pay off your good debts on a regular schedule while investing in your future. Once you’ve blazed through your bad debt, you may even have extra cash to help you accomplish your long-term goals.

Choose the strategy that fits your personality and financial situation to increase the chances for success.

4. Complete a Balance Transfer

A balance transfer allows you to pay off debt from one or more high-interest credit cards (or other high-interest debt) by using a card with a lower interest rate. This strategy has a number of benefits.

•  First, it helps you get organized. Staying on top of one credit card statement might be easier than keeping track of many cards.

•  This strategy also helps you free up the money you were paying toward higher interest rates, which you could use to accelerate your debt payments.

Research what’s available carefully. Some credit cards offer teaser rates as low as 0% for a set period of time, such as six months to a year or even longer. It may make sense to take advantage of one of these deals if you think you can pay down your debt within that time frame.

However, when these teaser rates expire, the card might jump to its regular rate, which could be higher than the rates you were previously paying.

5. Make More Than the Minimum Payment

Credit cards allow you to make minimum payments — small portions of the balance you owe — until your debt is paid off. While this might seem convenient on the surface, this system is stacked in the credit companies’ favor. Making minimum payments can cost more in the long run than making larger payments and paying down debt faster.

That’s because as you make minimum payments, the remaining balance continues to accrue interest. Consider a credit card balance of $5,000 with a 15% interest rate. According to this credit card interest calculator, if you only make minimum payments of $112.50 per month, it will take you 64 months (5 years and 4 months!) to pay off your debt of $7,344. And in that time you will have spent more than $2,344 on interest payments alone.

In an ideal world, you would pay your credit card balance off each month and wouldn’t owe any interest. But, if that’s not possible, consider paying as much as you can to minimize the cost of high interest rates.

6. Find Extra Cash

Finding the cash to pay off your debt can be tough, especially if you’re looking to accelerate your debt payments. The most obvious place to start is by cutting unnecessary expenses.

For example, you might save money on streaming services by dropping some or all of your subscriptions, or give up your gym membership while you’re getting your debt in check. You may also try negotiating lower rates for some necessary expenses such as phone or internet bills, or consider starting a side hustle that can boost your income.

You can also use any windfalls, such as extra cash from tax returns, bonuses at work, or generous birthday gifts, to help accelerate your debt payments.

7. Avoid Taking on More Debt

While you’re paying off debt, it’s important that you work hard to not add to your debt. If you’re trying to pay off a credit card, you might want to stop using it. You may not want to cancel your credit card, but consider putting it somewhere where it’s not easily accessible. That way you’ll be less tempted to use it for impulse buys.

It can also be helpful to track your spending with a free budget app to help understand where your money is going and how not to increase your debt.

8. Consolidate Debt

Consolidating is another strategy that makes use of lower interest rates to pay off debt.

•  When you take out a loan, it will come with a fixed interest rate and a set term. When you consolidate your debts, you are essentially taking out a new loan to pay off debts, hopefully with a better interest rate or term.

•  A new loan with a lower interest rate can save you money in the long run, especially if you’re carrying a sizable balance. You may also be able to lower your monthly payments to make a budget more manageable on a month to month basis — or you may be able to shorten your terms, which can let you pay off the loan faster. Do keep in mind extending the term of the loan could lead to lower monthly payments but you may end up paying more in interest over time.

•  You may want to consider consolidating if you’ve established your credit history since you took out your loan. That may mean banks are more willing to trust a borrower with a loan and will give them more favorable rates and terms.

•  Also, keep an eye on the prime interest rate set by the Federal Reserve. When the Fed lowers interest rates, banks often follow suit, providing you with a possible chance to find a loan with lower interest rates.

9. Reward Yourself

Paying off debt can be a challenging process. That’s why it’s so important to treat yourself as you reach debt milestones.

Tethering productive behavior to rewards is a process that Wharton business school professor Katherine Milkman calls “temptation bundling.” This process can help you boost your willpower and stick to your goals.

So, choose a reward and tie it to a debt milestone like paying off a credit card, or paying off 10% of your debt. Each of these steps puts you closer to being debt-free, and that’s worth celebrating. When you reach a goal, indulge in a free or budget-friendly reward.

Debt Payoff Tips

Paying off debt often requires patience and persistence. Here’s some smart advice to address common concerns and help keep you going as you whittle down that debt.

What Are Some Common Mistakes to Avoid When Paying off Debt?

Some common mistakes when paying off debt are hiding from the situation (that is, not looking at how much you owe and creating a plan), taking out high interest payday loans, and, in some cases, taking out a home equity loan. Here’s a closer look at each:

•  It can be a common mistake to not dig in, review the full picture, and make a plan. Some people would rather be in denial and just keep paying a little bit here and there. Knowing your debt and developing a way to pay it off can be the best move.

•  Taking out a payday loan or other high-interest option to make a payment. This can make a tough situation worse by adding more money owed to your situation. A personal loan might be a better option with lower rates.

•  Tapping your home equity. Credit card debt is unsecured; you don’t put up anything as collateral. A home equity loan, however, uses your home as collateral. Yes, a home equity loan can be a helpful option in some situations, but if you use that equity to continue spending at a level your income can’t support, that can mean bigger problems lie ahead. You could wind up losing your home.

How Can I Balance Paying off Debt with Saving for Other Financial Goals?

To manage both debt repayment and saving, it’s important to make sure you keep current on paying what you owe. Next, you might want to create a budget, cut your spending, and automate your finances (which will send some money to savings) to help maintain a good balance. Here’s guidance:

•  Create a budget, keep paying off your debt, and work to create an emergency fund (even saving $20 or $25 a month is a good start).

•  Commit to cutting your spending. Some people like gamifying this: Say, one month, you vow to not eat dinner out; another month, you decide to forgo buying any new clothes.

•  Automate your finances. This can be as simple as setting up a recurring transfer from your checking account to savings just after payday. That whisks some money into savings (a small amount is fine), and you won’t see it sitting in checking, tempting you to spend it.

What Are My Debt Relief Options if I’m Struggling to Make Payments?

Some ways to get help with debt relief can include a balance transfer credit card, a personal loan, a debt management plan, and (if no other options are possible) considering declaring bankruptcy. If you are having a hard time with debt payoff, there are several options:

•  As mentioned above, you might take advantage of zero-percent balance transfer credit card offers.

•  You can contact your creditors and see if they will lower your interest rate or otherwise reduce your burden.

•  You might consider a personal loan (mentioned above) to pay off high-interest debt with a lower-interest loan.

•  You could participate in a debt management plan that consolidates your debt into one payment monthly that is then divvied up among those to whom you owe money. Look for a plan that is backed by a reputable organization such as the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America.

•  You might decide to declare bankruptcy; the most common form is known as Chapter 7 liquidation, and can get rid of credit card debt, medical debt, and unsecured personal loans. Educate yourself carefully to see if you qualify, and be sure you understand the long-term impact it may have on your personal finances.

The Takeaway

Digging yourself out of debt can be a challenging process, but with a well-crafted plan and discipline, it can be achieved. Evaluate your spending habits, determine how you are going to prioritize your debts, and stick to your plan by setting small, measurable goals. One option people consider is consolidating multiple high-interest debts into a one personal loan with one payment. However, note that extending the loan term could lead to lower monthly payments, but you may end up paying more interest in the long run.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Why is it important to have a plan to pay off debt?

It’s important to have a plan to pay off debt so you can be organized and strategic in this effort. Only by knowing the full extent of your debt and your resources can you make a plan. Whether you choose to use a method like the snowball or avalanche technique, take out a personal loan, or try a debt management program, it’s vital to know just where you stand.

What are some strategies for dealing with multiple sources of debt?

If you have multiple sources of debt, you may want to research the snowball, avalanche, and fireball methods of paying down what you owe. These consider such factors as how much you owe and the interest rate you are being charged and can help you prioritize how you repay the debt. These strategies can help focus your efforts and contribute to your success.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

This article is not intended to be legal advice. Please consult an attorney for advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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When you’re worried about money and feel your options are limited, debt can feel like a pair of handcuffs. And if it feels like you can’t do what you want to do — which is to pay it all off and get yourself free — there’s the temptation to do nothing. The right debt reduction plan, however, can help you start paying down your balances, stay on track with your budget, and work towards your future financial goals. Here are some options to get you started.

Tips to Build a Debt Reduction Plan

Prioritizing Expenses

A good first step is to look at everything you have coming into your bank account each month (income) and everything that is going out (spending). You can do this with pen and paper, or by leveraging an all-in-one budgeting app, such as SoFi..

Once you have a list of all of your monthly expenses, you can divide them into essential and nonessential expenses. Looking over your nonessential expenses, you may find easy places to cut back (such as streaming services you rarely watch or a membership to a gym you hardly ever use) to free up more funds for debt repayment. You may also need to cut back in other areas, such as meals out, clothing. and other discretionary purchases, at least temporarily.

A budgeting framework you might try is the 50-30-20 rule, which recommends putting 50% of your money toward needs (including minimum debt payments), 30% toward wants, and 20% toward savings and paying more than the minimum on debt payments.

Next, you can come up with a debt repayment strategy. Here are four popular approaches to knocking down debt. The debt avalanche method is probably best suited to those who are analytical, disciplined, and want to pay off their debt in the most efficient manner based solely on the math.

The debt snowball method takes human behavior into consideration and focuses on maintaining motivation as a person pays off their debt.

The debt fireball method is a hybrid approach that combines aspects of the snowball and avalanche methods. Here’s a closer look at each strategy.

Debt Avalanche

The avalanche method puts the focus on interest rates rather than the balance that’s owed on each bill.

1.    The first step is collecting all debt statements and determining the interest rate being charged on each debt.

2.    Next, you’ll want to list all of those debts in order of interest rate, so the debt with highest interest is on top and the debt with the lowest interest rate is at the bottom of the list.

3.    Now, you’ll want to focus on paying more than the minimum monthly payment on the debt that is first on the list, while continuing to make the minimum payments on all the others.

4.    When the first debt is paid off, you can move on to paying more than the minimum on the second debt on your list. By eliminating debts based on interest rate, you can save money on interest.

Debt Snowball

The debt snowball method can be effective in getting a handle on debt by getting rid of debts on your list more quickly than the avalanche method. However, it can cost a bit more.

1.    You’ll start by collecting debt statements and making a list of those debts, but instead of listing them in order of interest rate, organize them in order of size, with the smallest balance on top and the largest balance at the bottom of the list.

2.    Next, you’ll want to put extra money towards the debt at the top of the list, while continuing to pay the minimum on all of the other debts.

3.    Once you wipe away the first debt, you can start putting extra money towards the second debt on the list and, when that is one wiped out, move on to the third, and so on. This method provides early success and, as a result, can motivate you to keep going until you’ve wiped out all of your debts.

Debt Fireball

This strategy is a hybrid approach of the snowball and avalanche methods. It separates debt into two categories and can be helpful when blazing through costly “bad debt” quickly.

1.    You’ll want to start by categorizing all debt either “good” or “bad” debt. “Good” debt is debt that has the potential to increase your net worth, such as student loans, business loans, or mortgages. “Bad” debt, on the other hand, is normally considered to be debt incurred for a depreciating asset, like car loans and credit card debt. These debts also tend to have the highest interest rates.

2.    Next, you can list bad debts from smallest to largest based on their outstanding balances.

3.    Now, you’ll want to make the minimum monthly payment on all outstanding debts — on time, every month — then funnel any excess funds to the smallest of the bad debts. When that balance is paid in full, you can go on to the next-smallest on the bad-debt. This helps to keep the fireball momentum until all the bad debt is repaid.

4.    Once the bad debt is paid off, you can simply keep paying off good debt on the normal schedule. In addition, you may want to apply everything that was being paid toward the bad debt towards a financial goal, such as saving for a house, paying off a mortgage, starting a business, or saving for retirement.

Using Personal Loans for Debt Reduction

Another debt payoff strategy you may want to consider is refinancing your debt. This involves taking out a personal loan, ideally with a lower rate than you are currently paying on your “bad” debts, and using it to pay off your balances.

Personal loans used for debt consolidation can help pull everything together for those who find it easier to keep up with just one monthly payment. A bonus is that because the interest rates for personal loans are typically lower than credit card interest rates, you can end up saving money.

Here’s a look at the process.

1.    You’ll first want to gather all of your high-interest debt statements and total up the debts to be paid.

2.    A good next step is to research your personal loan options, comparing rates, terms, and qualification requirements from different lenders, including traditional banks, online lenders, and credit unions. You may be able to “prequalify” for a personal loan for debt consolidation to get an idea of what rate you are likely to qualify for. This only requires a soft credit check and won’t impact your score.

3.    Once you’ve found a lender you want to work with, you can apply for the debt consolidation loan. Once approved, you can use the loan to pay off your high-interest debts. Moving forward, you only make payments on the new loan.

The Takeaway

Having a debt reduction plan in place is key to getting rid of those financial handcuffs and being able to look forward to a successful financial future. To get started, you’ll want to assess where you currently stand, find ways to free up funds to put towards debt repayment, and choose a debt payoff method, such as the avalanche or snowball approach.

Another option is to get a debt consolidation loan. This can help simplify repayment and also help you save money on interest. If you’re curious about your options, SoFi could help. With a lower fixed interest rate on loan amounts from $5K to $100K, a SoFi debt consolidation loan could substantially lower how much you pay each month. Checking your rate won’t affect your credit score, and it takes just one minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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