How to pay off debt

1. Calculate how much you owe

Before you can pay off debt, you need a full understanding of everything you owe. Make sure you understand the balance, interest rate, minimum payment, and due date for each one of your debts.

Here is a simple format to follow:

Seeing everything in one place shows you which debts cost you the most in interest, which is where your focus should go first.

2. Choose a repayment strategy

Two strategies work best for most people: the debt avalanche and the debt snowball. Your personality and financial goals will determine which method is right for you.

Debt avalanche: Pay minimums on all debts, then put every extra dollar toward the debt with the highest interest rate. Once that balance hits zero, move to the next highest rate. This method saves you the most money over time.

Debt snowball: Pay minimums on all debts, then focus your extra money on the smallest balance first. Each time you pay off a debt, you roll that payment into the next one. This method builds momentum through quick wins

Both strategies work. The best one is the one you will actually stick with.

3. Lower your interest

High interest rates slow your progress. Reducing your rate means more of every payment goes toward your actual balance instead of fees.

A few ways to lower what you pay in interest:

• Balance transfer cards: Some cards offer 0% APR for an introductory period, often 12 to 21 months. Moving high-rate credit card debt to one of these cards can give you breathing room. Watch for balance transfer fees, which typically run 3% to 5% of the amount transferred.

• Debt consolidation loans: A personal loan with a lower rate than your current debts can combine multiple balances into one monthly payment.

• Call your lender: Ask your credit card company for a lower interest rate. This works more often than people expect, especially if you have a history of on-time payments.

• Refinance loans: If rates have dropped since you took out a personal or auto loan, refinancing could reduce your monthly cost.

4. Increase your payment power

Paying just the minimum keeps you in debt longer and costs you more in interest. The more you can put toward your balances each month, the faster your debt disappears.

There are two ways to increase your payment power: cut expenses or bring in more income. Most people do a combination of both.

Cut expenses:

• Cancel subscriptions you rarely use

• Cook at home more often

• Pause large discretionary purchases during your payoff period

• Shop around for lower rates on insurance or utilities

• Use any windfall money, such as tax refunds or bonuses, directly on debt

Increase income:

• Pick up freelance or gig work on evenings or weekends

• Sell items you no longer need

• Ask about overtime opportunities at your current job

• Apply a portion of any raise or new income stream directly to debt

Even an extra $100 or $200 per month can make a meaningful difference. On a $5,000 credit card balance at 20% APR, adding $150 extra per month can cut your payoff time nearly in half.

These supplemental strategies can work alongside your main “debt avalanche” or “debt snowball” approach to lower your costs, simplify your payments, and help you pay off debt faster.

Debt consolidation

Combine multiple debts into a single loan at a lower interest rate. This simplifies your monthly payments into one due date and can reduce your total interest cost. It works best when you qualify for a rate lower than what you currently carry.

Balance transfer

Move high-rate credit card balances to a card with a 0% introductory APR. This gives you a window to pay down your principal without interest piling up. Just make sure you can pay off the transferred balance before the promotional period ends. Most cards charge a transfer fee of 3% to 5%. Axos Bank offers personal loan options that can serve a similar purpose, consolidating high-rate balances into one fixed monthly payment at a lower rate.

Debt management plan (DMP)

A nonprofit credit counseling agency can negotiate with your creditors on your behalf and set up a structured repayment plan, usually lasting three to five years. A DMP may reduce your interest rates and roll your payments into one manageable monthly amount. (Source: National Foundation for Credit Counseling, nfcc.org)

What to avoid: Debt settlement, where a company negotiates to pay less than you owe, can seriously damage your credit score and may have tax implications. It is generally a last resort.

Credit card debt is one of the most expensive types of debt you can carry. The average credit card interest rate exceeded 20% APR in 2024, meaning balances grow quickly if you only pay the minimum. Here’s how to tackle it efficiently.

Before you can pay down your credit card debt, you need to stop adding to it. This does not mean you have to cut up your cards. It means being intentional about new charges.

• Switch to a debit card or cash for everyday purchases during your payoff period

• Remove saved card information from shopping apps to reduce impulse buys

• Set a rule: if you do use a credit card, pay off that charge in full before the due date

• Pause any automatic charges you do not truly need

Adding new charges to a card you are trying to pay off is like bailing water from a leaking boat. Stopping the leak comes first.

To build an effective payoff plan, you need four pieces of information for each credit card you carry:

• Current balance: The total amount you owe right now

• APR: Your annual percentage rate, which determines how fast interest adds up

• Minimum payment: The lowest amount the card requires each month

• Due date: When your payment must arrive to avoid late fees

Knowing these numbers lets you calculate exactly how long payoff will take and how much interest you will pay along the way.

For credit card debt specifically, the debt avalanche is the most effective approach. Here’s how it works:

1. List all your credit cards from highest APR to lowest

2. Pay the minimum on every card each month, no exceptions

3. Put every extra dollar you can find toward the card at the top of your list

4. Once that card reaches zero, take everything you were paying on it and add it to the next card

This method attacks the most expensive debt first. Because credit cards tend to carry the highest interest rates of any consumer debt, eliminating the highest-rate card first has a big impact on your total payoff cost.

Lowering your interest rate directly speeds up your payoff. Here are practical ways to do it:

Ask your current issuer: Call the number on the back of your card and request a rate reduction. Mention your payment history and how long you have been a customer. Many issuers will reduce your rate, especially if you have a history of paying on time.

Use a balance transfer card: Transfer your balance to a card offering 0% APR for an introductory period. You will typically pay a one-time fee of 3% to 5%, but if you pay off the balance before the promotional period ends, you’ll save significantly on interest.

Look into a personal loan: A personal loan from a bank or credit union at a lower rate than your cards can consolidate your balances and give you a fixed payoff schedule. Axos Bank offers personal loan options that can help.

Every dollar above the minimum that you put toward your card makes a real difference. Here is how to find more money to put toward your balance:

• Cut expenses temporarily: Subscriptions, dining out, and entertainment are good places to start. Even a few months of reduced spending can accelerate your payoff meaningfully.

• Bring in extra income: A weekend side job, selling items online, or freelance work can generate one-time or recurring payments you can apply directly to your balance.

• Use every windfall: Tax refunds, bonuses, cash gifts, and rebates should go straight to your highest-rate card. This is not extra spending money when you are in payoff mode.

• Automate your payments: Set up automatic payments above the minimum so you never miss a due date and always make consistent progress.

Paying off debt is not a quick fix, but it is completely achievable with a clear plan and consistent effort. Start by listing every debt you owe and picking a repayment strategy that matches your goals. Lower your interest rates wherever you can and find ways to put more money toward your balances each month.

If credit card debt is your biggest challenge, stop adding new charges first, then apply the debt avalanche strategy to eliminate your highest-rate balances as fast as possible.

If you are looking for tools to simplify the process, Axos Bank offers personal loans and banking solutions designed to help you take control of your finances on your own terms. Visit axosbank.com to explore your options.