Need to Clear Debt Faster? 6 Strategies That Can Help

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Key Takeaways

• More than 40% of Americans say credit card debt is making it harder to stay focused on long-term financial goals, according to an Achieve survey.

• Picking a repayment approach you can consistently follow is an important first step. The debt avalanche can reduce interest costs, while the debt snowball can deliver faster motivational progress.

• If handling repayment on your own is not enough, other options may help. Depending on your balances, credit profile and ability to pay, debt consolidation, credit counseling or debt relief could be worth considering.

Debt is becoming harder to overlook. Credit card balances alone reached $1.26 trillion in the second quarter, up $54 billion from the previous year, according to the Federal Reserve.

With borrowing costs still elevated, carrying balances can quickly become expensive and reduce the money available for other priorities. In fact, 43% of Americans say credit cards and other short-term debt are getting in the way of their long-term financial goals, according to an Achieve and Money.com survey.

There is no shortcut for eliminating debt, but the right payoff strategy can help reduce interest costs and move you toward debt freedom sooner.

These six steps can help speed up repayment.

1. Pay more than the minimum each month

One of the most effective ways to eliminate credit card debt and other balances faster is to pay more than the required minimum every month, even if the extra amount is small.

Minimum payments on revolving debt, such as credit cards, usually go mostly toward interest rather than principal. When you pay more, more of your money goes to reducing the balance itself, which lowers the interest charged the following month.

For example, if you have a $6,500 credit card balance with a 23.99% annual percentage rate (APR) and a $146 minimum payment, it would take more than nine years to pay it off with minimum payments alone. Adding just $100 more each month would cut that timeline to a little over three years and save nearly $7,000 in interest.

You can pay above the minimum on many types of loans, but it is important to understand how those extra dollars are applied, especially with installment loans such as a mortgage, auto loan or student loan. In some cases, you may need to ask the lender to apply the extra payment to principal instead of treating it as an early payment credit. Also keep in mind that some loans, including mortgages and auto loans, can carry prepayment penalties. Most lenders do not charge for extra or early payments, but it is wise to read your loan terms before sending additional money.

2. Create a repayment plan

Rather than making extra payments without a structure, you will usually do better with a clear payoff plan. A debt avalanche approach can help you save the most on interest, but the most important thing is choosing a method you can maintain. If you need early motivation, focusing on smaller balances first may be a better fit.

Whichever strategy you choose, the process is generally the same:

1. List all loans and credit cards in a spreadsheet, along with balances, APRs and minimum payments.
2. Rank the debts either from highest interest to lowest or from smallest balance to largest.
3. Add up every minimum payment to see how much must go toward debt each month.
4. Review your budget to find what remains after essential expenses, including minimum debt payments. That helps determine how much extra can be redirected to the debt you are attacking first.
5. Build a monthly payoff plan. You can also use an online debt avalanche or debt snowball calculator to estimate your timeline and track progress.

3. Focus on high-interest debt first

The debt snowball and debt avalanche are two of the most widely discussed repayment strategies. The avalanche method targets the most expensive debt first.

Under this approach, you make minimum payments on all debts except the one with the highest interest rate. Any extra money goes to that balance until it is gone, then you move on to the next-highest rate.

This method minimizes the total interest you pay.

By contrast, the debt snowball method pays off the smallest balances first. It can be a good choice if you want to see quick wins and stay motivated, since you eliminate smaller debts sooner. However, because other balances may continue accumulating costly interest, it is not usually the least expensive route.

4. Rework your budget and cut unnecessary spending

The more money you can direct toward your highest-interest debt each month, the sooner you can become debt-free. The challenge is finding the extra cash.

Start by examining your budget and current spending. The first place to look is discretionary spending. These are often the easiest expenses to trim, even if it is painful to cut them out completely, such as dining out, concert tickets, video games or nail appointments.

If you have already trimmed those categories as much as possible, take a closer look at necessary expenses. While these costs are usually less flexible, you may still find savings. For example, you might adjust your thermostat, plan meals around grocery deals or shop for cheaper auto insurance. Even a 5% to 10% reduction in essential bills can free up meaningful cash for debt repayment.

The goal is to be disciplined enough to find real savings without making your budget so strict that you cannot sustain it. Also avoid draining your emergency fund entirely to speed up repayment, since an unexpected expense could force you back into debt.

Finally, direct any extra money you receive toward debt, whether it comes from a tax refund or a work bonus.

5. Look into consolidating your debt

It may seem counterintuitive, but sometimes borrowing again can help you pay off debt more quickly. That is the idea behind debt consolidation.

With a consolidation loan, the goal is to replace high-interest balances with a loan that has a lower rate. Common options include a personal loan, a home equity loan or a home equity line of credit. Because home equity borrowing is secured by your house, it often comes with lower rates than personal loans. Either way, both can start far below typical credit card APRs, which can make repayment less expensive.

Another similar option is a balance transfer credit card. These cards often offer 0% interest for a limited time, which can temporarily reduce the cost of carrying debt. However, you usually have to pay a transfer fee.

Keep in mind that qualifying for a favorable rate or a balance transfer card usually requires a solid credit score and a history of on-time payments. If you are not there yet, you may need to use the earlier steps in this guide to reduce balances and improve your credit first.

6. Avoid letting debt go to collections

If you fall behind on payments for several months, the account may become delinquent and the debt could be sent to collections. If your debt already feels unaffordable, it can become even more difficult once collectors are involved.

Late fees and interest will continue to build. You could also face collection fees and legal costs if the creditor turns the account over to a collection agency or pursues legal action. In some cases, wage garnishment may occur, which means payments can be taken directly from your paycheck. Your credit score would also take a major hit, making it harder to borrow again for years.

If you are still current but struggling, contact your lenders as soon as possible. Although many do not advertise the details, banks and other lenders may offer temporary payment pauses or reduced payments to help borrowers get back on track.

If you are already behind, outside help may be the next step. Credit counseling can help you create a budget and payment plan, and counselors are often able to negotiate lower interest rates with creditors. Another option is debt negotiation, where a company works to settle debts for less than you owe. Make sure you understand the process fully: reputable debt relief companies should clearly explain their fees and what results you can reasonably expect.

Why paying off debt quickly can pay off

Living on a tight budget for a long time is not easy. Keeping your focus on a debt-free future can help you stay motivated and continue working toward your goal.

When you are tempted to delay repayment or spend on nonessentials, remember the benefits of faster payoff.

You will pay less interest

If there is a secret to reducing credit card debt faster, it is directing as much money as possible toward principal. A faster repayment schedule reduces the balance more quickly and leaves less interest to pile up, which can save a significant amount of money.

Consider that same $6,500 balance with a 23.99% APR and a $146 minimum payment. Paying only the minimum would result in more than $9,800 in interest before the card is fully repaid. Increasing payments to about $250 per month would reduce total interest to a little over $2,800.

It can improve access to credit

Paying down debt faster can improve your debt-to-income ratio and may raise your credit score. That ratio compares the amount you owe each month with the amount you earn.

A healthier ratio can open the door to better borrowing opportunities. You may qualify for lower rates, broader loan choices and larger loans, which can make goals such as buying a home or car easier to reach.

It can improve your quality of life

Money stress can affect both emotional and physical health. In the Achieve survey, half of respondents said money worries made them anxious and 49% said financial issues led to sleeplessness. Being debt-free will not erase every financial concern, but it can create much-needed breathing room.

One additional way to reduce stress is to set aside a small amount each month while paying down debt so you can build an emergency savings fund and avoid borrowing for unexpected expenses later.

Once your loans are paid off, you can stop sending so much of your money to creditors and instead put those dollars to work for you. A high-yield savings account or retirement investing are good places to start.

Paying off debt FAQs

Should I pay off debt or build savings first?

Start by building a small emergency fund first, enough to cover a major car repair or another surprise bill without borrowing. Then focus on expensive debt, especially revolving credit card balances, before continuing to grow savings. The longer-term goal is an emergency fund equal to at least three months of expenses in case you lose your job.

Is a 0% balance transfer card better than a debt consolidation loan?

A balance transfer card may be the better choice if you have a relatively small balance that you can pay off before the promotional 0% period ends, which is often 12 to 18 months. After that period, any remaining balance will likely face interest above 20%. For larger balances, a consolidation loan with a lower rate and a fixed repayment schedule is often the better fit.

How much income should go toward debt repayment?

Many financial planners refer to the 50/30/20 rule, which suggests using 50% of take-home pay for needs, 30% for wants and 20% for debt payments and savings. Still, that is only a guideline. If your goal is to pay off debt quickly, you may need to reduce spending on wants and redirect more money toward repayment.