Need to Eliminate Debt? 6 Strategies That Can Help You Pay It Off More Quickly

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

With borrowing costs still elevated, keeping a balance can become expensive quickly and reduce the cash you’d rather direct to other priorities. A recent survey from Achieve and Money.com found that 43% of Americans say credit cards and other short-term debt are standing in the way of their long-term financial goals.

There’s no quick fix for eliminating debt, but the right repayment approach can help you pay less interest and become debt-free sooner.

Below are six ways to speed up your payoff plan.

1. Pay more than the minimum each month

One of the most effective ways to pay off credit card debt — and other loans — faster is to send in more than the minimum payment whenever possible, even if the extra amount is small.

Minimum payments on revolving debt such as credit cards usually chip away at only a small portion of the principal, which allows interest to build rapidly. Paying more toward principal reduces the amount on which interest is charged the following month.

For instance, 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 by making only minimum payments. Add an extra $100 each month, and the balance could be gone in a little over three years. You’d also save nearly $7,000 in interest.

You can make extra payments on many loan types, but it’s important to understand how those payments are applied, especially on installment loans such as mortgages, auto loans and student loans. In some cases, you may need to ask your lender to apply the extra money directly to the principal rather than treat it as an advance payment. Also note that some loans, including mortgages and auto loans, can include prepayment penalties. Most lenders do not penalize extra payments or early payoff, but it’s wise to check your loan terms before making one so you are not surprised by a fee.

2. Build a payoff plan

Rather than sending extra money toward debts at random, you’ll usually be more effective if you create a clear repayment plan. One option is the debt avalanche method, which can save the most money over time. Still, the most important thing is choosing a plan you can actually follow. If you need quick motivation, focusing on smaller balances first may be a better fit.

Whichever strategy you choose, the basic process is similar:

1. List all loans and credit cards in a spreadsheet, including balances, APRs and minimum payments.

2. Rank the debts, either from highest to lowest interest rate or from smallest balance to largest.

3. Add up your minimum payments to see how much you must set aside each month.

4. Review your budget to determine how much money remains after covering essentials and minimum debt payments. That amount can be redirected toward the debt you are attacking first.

5. Set a monthly payoff target. You can also use a debt avalanche or debt snowball calculator online, and some tools can even help you build a spreadsheet to track your progress.

3. Focus on the highest-interest debt first

Two of the most common repayment strategies are the debt snowball and the debt avalanche. The avalanche method puts the most expensive debt first.

Under this approach, you pay debts in order of interest rate, starting with the highest. You make minimum payments on everything else and apply any extra cash to the targeted account. After that balance is cleared, you move on to the next-highest rate.

This method helps you pay the least amount of interest overall.

The debt snowball method, by contrast, starts with the smallest balance and works up to the largest. It can be a good choice if you need early wins to stay motivated, since smaller debts disappear faster. But because the larger balances continue accumulating interest, it is not the least expensive route to becoming debt-free.

4. Tighten your budget and cut unnecessary spending

The more money you can direct toward your highest-interest debt each month, the sooner you can get out of debt. The challenge is finding that extra cash.

Start by reviewing your budget and your current spending. Cutting discretionary expenses should come first. These are usually easy to identify, even if hard to give up: dining out, concert tickets, video games or nail appointments.

If you have already reduced that category as much as possible, look at necessary spending too. While those costs are usually less flexible, there may still be room to trim. You might adjust your thermostat a few degrees, plan meals around grocery sales or shop for cheaper auto insurance. Even a 5% to 10% reduction in essential bills can free up money for debt repayment.

The goal is to be disciplined enough to find meaningful savings without making your budget so strict that you can’t sustain it. Also avoid draining your emergency savings completely to accelerate repayment, since an unexpected expense could push you right back into debt.

If you receive extra money, plan to use it toward debt as well. That could include a tax refund or a work bonus.

5. Look into debt consolidation

It may sound counterintuitive, but taking out a new loan can sometimes help you pay off debt faster. That’s the idea behind debt consolidation.

With a consolidation loan, the goal is to replace higher-interest debt with lower-interest debt. Common options include a personal loan or a home equity loan or line of credit. Because home equity products use your home as collateral, their rates are often lower than personal loan rates. Either way, the starting APR may be much lower than what you pay on credit cards, creating an opportunity to repay debt for less.

A similar option is a balance transfer credit card, which may offer 0% interest for a limited period and give you temporary relief from interest charges. However, you will usually pay a transfer fee.

Keep in mind that a solid credit score and a history of on-time payments are typically needed to get a favorable rate or qualify for a balance transfer card. If your credit is not there yet, you may need to spend some time paying down debt and improving your score before using this approach.

6. Avoid letting debt go to collections

If you fall behind on loan payments for several months, your account can become delinquent and eventually be sent to collections. If debt feels unaffordable now, it can become much worse once collectors get involved.

Late fees and extra interest can add to what you owe. You could also face collection fees and legal costs if the lender turns the account over to a collection agency or decides to take legal action. In some cases, wage garnishment may follow, meaning payments are taken directly from your paycheck. Your credit score can also take a major hit, making it harder to qualify for credit for years.

If you are struggling but still current, contact your lenders right away. Many do not publicize these programs, but some banks and lenders may offer short-term payment pauses or reduced payments to help you catch up.

If you are already behind, outside help may be worth considering. Credit counseling can help with budgeting and payment planning, and a counselor may be able to persuade creditors to lower your interest rate. You can also work with a debt settlement company to try to negotiate a payoff for less than you owe. Make sure you understand the process fully; reputable companies should clearly explain their fees and what outcomes you can reasonably expect, including potential savings.

The upside of paying off debt quickly

Living on a tight budget for a long stretch is difficult. Keeping sight of the goal — a debt-free future — can help you stay focused on your payoff plan.

When you are tempted to delay your payoff date or spend on extras instead of putting money toward debt, remember these benefits.

You’ll spend less on interest

If there is a secret to paying off credit card debt faster, it is putting as much money as possible toward the principal. An accelerated repayment plan reduces your principal more quickly and limits the interest that piles up, which can create major savings.

Using that same $6,500 balance at 23.99% APR with a $146 monthly minimum, paying only the minimum would cost more than $9,800 in interest before the card is fully paid off. If you send about $250 a month toward the principal, the interest cost drops to just over $2,800.

You may open the door to more credit opportunities

The faster you reduce debt, the more your debt-to-income ratio may improve, and your credit score could rise. Your debt-to-income ratio compares your monthly debt obligations with your monthly income.

A healthier ratio can improve your access to credit. You may qualify for better interest rates later and potentially have access to a wider range of loans and larger borrowing limits, which can make it easier to reach goals such as buying a home or a car.

It can improve your quality of life

Money worries can take a toll emotionally and physically. In the Achieve survey, half of respondents said thinking about money made them anxious, and 49% said financial problems affected their sleep. Becoming debt-free will not erase every stressor, but it can create more breathing room.

One additional way to reduce financial stress is to set aside a little money each month while you work on your payoff plan so you can build an emergency fund and avoid borrowing for unexpected expenses later.

Once your loans are paid off, you can stop sending hard-earned money to interest and instead put it to work for you. A good next step is placing that money in a high-yield savings account or investing it for retirement.