How to pay off debt: A step-by-step guide

Paying off debt starts with a plan. Whether you’re tackling credit card balances, loans or other debts, a few smart moves and steady habits can help you make progress toward becoming debt-free.

This step-by-step guide shows you how to get out of debt by organizing what you owe, choosing a repayment strategy and staying committed to your goals.

Step 1: Map out your debts

Before you can pay off debt, you need to know exactly what you owe. A list of what you owe gives you a starting point and helps you choose the right repayment strategy.

List what you owe

Start by listing all your debts, including credit cards, personal loans, student loans and any other balances. For each one, note the balance, the annual percentage rate (APR) and the minimum monthly payment. This process can help you understand what you owe and decide what to do next.

Your list can also show how interest affects the total cost of borrowing. For example, a $5,000 credit card balance with a 21% APR and a $150 monthly payment could take more than 4 years to repay and cost more than $2,500 in interest. Seeing those numbers can help you decide which balances to tackle first.

Find extra money to pay off debt

Once you know what you owe, the next step is finding room in your budget to pay it down faster. A budget worksheet can help you spot expenses you may be able to reduce and redirect toward debt repayment. Even small amounts—$25 here, $50 there—applied consistently can chip away at a balance faster than the minimum payment alone.

Step 2: Choose a repayment strategy

The next step is deciding how to pay off your debt. The method you choose can affect both the interest you pay and your motivation to keep going. Start by asking yourself a few important questions.

Which debt should you pay off first?

The debt you pay off first depends on what’s most important to you. Some people focus on the debt with the highest interest rate to save money over time. Others prefer to pay off smaller balances first for quicker wins and steady progress.

Both approaches can work. The best repayment strategy is the one you’ll stick with over time.

Pay more than the minimum

Even a small increase in your monthly payment can help you reduce your balance sooner and pay less interest over time. Paying only the minimum keeps a current balance, but it can stretch out your payoff timeline and increase your total interest costs. The more consistently you can pay extra, the sooner you’ll see your balances shrink.

What is the debt avalanche method?

To use the debt avalanche method, list your debts from the highest interest rate to the lowest. Keep making minimum payments on everything, then put any extra money toward the balance with the highest rate first. Once that debt is paid off, roll the extra payment into the debt with the next-highest interest rate, and so on.

Because it targets the debt with the highest interest rate first, the debt avalanche method can help you save the most money on interest over time. Seeing more of your payment go toward the balance instead of interest can help you stay motivated as you make steady progress.

What is the debt snowball method?

The debt snowball method focuses on paying off your smallest debts first. List your debts from the smallest balance to the largest, and continue making minimum payments on all of them. Put any extra money toward the smallest balance first.

Once that debt is paid off, roll the extra payment into the next smallest balance, and so on. You may prefer this method if quick wins help you stay motivated.

Step 3: Lower interest costs and consolidate debt

If high-interest debt is making it harder to pay off what you owe, options such as balance transfers, debt consolidation loans and negotiating with creditors may help lower your interest costs. High-interest debt usually means debt with an APR that’s higher than the rate you may qualify for through another option, such as a balance transfer card or debt consolidation loan.

Balance transfer cards

Balance transfer cards let you move debt from one credit card to another, often with a low introductory APR for a limited time. That can reduce interest costs and help more of your payment go toward reducing your balance. Pay down as much of the balance as you can before the introductory rate expires, and keep up with your payments. If you miss a payment, the issuer may end the introductory APR and apply a higher rate to your remaining balance.

Debt consolidation loans

A debt consolidation loan can combine several balances into one loan and may lower interest costs on credit card debts. Depending on the lender and loan terms, it can also make repayment easier to manage.

Paying off a credit card through a consolidation loan doesn’t always close the account. If you continue using the card, you could end up with both the consolidation loan and a new credit card balance. Avoiding new debt can help you get the most out of debt consolidation.

Homeowners may also want to consider a home equity loan for debt consolidation. Because your home is used to secure the loan (and can be foreclosed on in the case of a default), make sure the payments fit comfortably within your budget.

Negotiate with creditors

If you’re having trouble keeping up with payments, call your credit card company and ask about available options. Some issuers may lower your APR, waive certain fees or offer a temporary hardship program. Having a strong payment history may improve your chances of receiving assistance.

Step 4: Build habits that support long-term debt payoff

A repayment strategy can help you get started, but the habits you build along the way can help you keep making progress. These tips can help you stay on track.

Automate your payments

Setting up automatic payments can help you avoid missed due dates and make repayment more consistent. It can help you avoid late fees and missed payments that could affect your credit report. You may choose to automate at least the minimum payment due and make extra payments when your budget allows.

Consider biweekly payments

Depending on your lender, you may be able to split your monthly debt payment into smaller payments every 2 weeks. Because there are 26 two-week periods in a year, this can add up to the equivalent of 1 extra monthly payment each year, which may help you reduce your balance sooner. Check with your lender to see how payments are applied and whether this option is available.

Limit new credit card spending

While you’re paying off debt, try to avoid adding to your credit card balances. Removing credit cards from digital wallets and online shopping accounts can make them less tempting to use.

How debt payoff affects your credit

Paying down debt can help improve your credit score over time. Two factors that can be affected are your credit utilization ratio and credit history.

Credit utilization ratio: This measures how much of your available credit you’re using. As you pay off credit card balances, your utilization ratio drops. Using less than 30% of your available credit is generally viewed positively by credit scoring models.

Credit history: In general, a longer credit history is viewed more favorably by credit scoring models. Closing a paid-off credit card can shorten your credit history and reduce your total available credit, both of which can affect your credit score. Keeping a paid-off card open may help maintain your credit history and available credit.

Keeping these factors in mind can help you make the most of your debt payoff efforts.

Tools and support for your payoff journey

Paying off debt takes time, but the good news is that you don’t have to do it alone. Explore our MakingCents resources for practical tips on managing debt and building a payoff plan. You can also learn more about balance transfer credit cards, debt consolidation, personal finance counseling or the Debt Consolidation Calculator.

Frequently asked questions

Is it better to pay off credit card debt all at once or incrementally?

Paying off credit card debt all at once will generally save the most money because it stops interest from adding up. If that’s not possible, making regular payments can still help you reduce your balance over time. The key is to stay consistent.

How can I get out of debt with bad credit?

You can get out of debt with bad credit by choosing a repayment strategy and making consistent payments. Debt snowball and debt avalanche methods can help you make progress, and a credit counselor may be able to provide additional guidance.

What is the difference between debt consolidation and debt relief or settlement?

Debt consolidation combines multiple debts into one payment, often through a balance transfer or personal loan. You still repay the full amount you owe. Debt relief or settlement involves asking creditors to accept less than your full balance, which can hurt your credit and may affect your taxes.