How to Find the Best Debt Repayment Method

How to Understand your Debt

Before jumping into finding a debt repayment method, it’s critical to understand exactly what you owe and how each debt impacts your financial situation. Think of it as doing a “debt audit”—a simple process that will bring clarity, reduce overwhelm, and set the stage for to choose the right debt repayment strategy. Here’s how you can break it down step by step:

1. List All Your Debts

The first step is to get a full picture of everything you owe. And yes, this means everything. Don’t shy away from putting it all on the table, as the more honest you are with yourself, the easier it will be to take control.

To do this effectively:

• Include all types of debt: Think beyond just credit cards, car loans, and student debt. Be sure to add smaller or informal debts, like that money you borrowed from a friend for concert tickets or a family loan.
• Use helpful tools: Create a spreadsheet or use a debt-tracking app to list all debts in one place. Apps like Undebt.It or Debt Payoff Planner can make organizing your finances less intimidating.

Pro Tip

Visit AnnualCreditReport.com to access free copies of your credit reports from Equifax, Experian, and TransUnion. Reviewing these reports helps ensure you don’t miss any debts you might have forgotten about, like a lingering store credit balance.

When listing your debts, take it one step further by grouping them into categories. For example:

• Revolving debt: Credit cards or personal lines of credit.
• Installment debt: Student loans, car loans, etc.
• Informal or personal debts: Loans from family or borrowed cash from friends.

Seeing everything laid out in an organized way is the first step to putting a plan into action.

2. Gather Key Details

Once you’ve listed your debts, it’s time to dig into the details to fully understand what you’re dealing with. For every debt, make note of the following:

• Type of debt (e.g., credit card, student loan): This helps you categorize and prioritize later.
• Creditor’s name: Knowing who to pay and how to contact them is crucial in case issues arise.
• Total balance remaining: Understanding the size of each debt helps you focus your efforts.
• Interest rate (APR): High-interest debts, like credit cards, can balloon quickly if not tackled, while lower-interest debts often allow for more flexibility.
• Minimum monthly payment: Knowing this ensures you can account for it in your budget.
• Payment due dates: Timely payments are critical for maintaining or improving your credit score, so set reminders if necessary.

Why This Matters

Imagine you have two debts—one is a $1,000 credit card balance with a 22% APR, and another is a $5,000 student loan with a 6% APR. Without these details, you might assume the bigger balance is the first priority. However, a quick look at the interest rates reveals that tackling the high-interest credit card debt first might save you more money over time.

3. Know the Difference Between Good Debt and Bad Debt

Not all debt is created equal, and understanding the distinction between good and bad debt can help you prioritize repayment more strategically:

Good Debt

Good debt is generally associated with investments in your future. These debts provide long-term value, even if they take time to repay.
Examples include:

• Student loans: These can increase your earning potential, making them an investment in your career. This depends on what career path you choose though. Generally we recommend only those with high earning potential like doctors, lawyers, engineers and that require schooling take on student loans
• Mortgages: Owning property can build equity and wealth over time.
• Investments/Business: Yes, businesses and investments can fail and you can be out money you borrowed. But if you invest the time before investing any money to learn exactly what you are getting into either by self education or bootstrapping in the beginning to get hands on knowledge. Debt can help you expand. 

Good debt usually comes with lower interest rates and has the potential for positive financial returns. However, it’s still important to keep it manageable.

Bad Debt

Bad debt tends to be high-interest and often used for items that don’t hold long-term value. Common examples are:

• Credit card debt: Especially balances that carry high APRs and are used for non-essential purchases, like dining out or clothes.
• Personal loans for luxury items: Financing a vacation or expensive gadgets may feel good now but can derail your financial progress.

Focusing on paying off bad debt first can free up your finances and reduce unnecessary stress.

Gray Area Debt

Some debts may not fit squarely into either category. For instance, a car loan is necessary for transportation but loses value over time. Evaluate gray area debts based on the role they play in your life and overall financial priorities.

Practical Tips to Stay Organized

It’s easy to feel overwhelmed when dealing with debts, but using small, practical steps can make the process manageable:

• Set up autopay: This ensures you never miss a payment, which protects your credit score.
• Use reminders: Calendar alerts for payment deadlines help you stay on top of your obligations.
• Create a debt snapshot: A simple one-page summary of all your debts can act as a quick reference guide and keep you motivated.

Why Understanding Your Debt Matters

Getting a clear picture of what you owe is empowering. It allows you to prioritize which debts to tackle first, whether that’s based on high interest or emotional motivation. More importantly, understanding your debt helps you create a plan that’s not just about repayment but also about building financial confidence for the future. Remember, this process isn’t about perfection—it’s about progress. Take it one step at a time, and you’ll soon see the results of your efforts.

The Most Popular Debt Repayment Methods

Once you’ve mapped out your debts, it’s time to take charge and decide how to pay them off. Choosing the right debt repayment method can make the process less overwhelming and keep you motivated as you work toward becoming debt-free. Below, we’ll cover three popular approaches to debt repayment, their pros and cons, and practical examples to help you find the best fit for your financial situation.

1. Debt Snowball Method

The snowball method focuses on paying off your smallest balances first, regardless of the interest rate. The idea is to create momentum by quickly eliminating smaller debts, giving you a series of motivational “wins” as you work your way up to larger balances.

How It Works:

• List your debts in order of smallest to largest balance.
• Pay the minimum amount required on all debts except the smallest one.
• Put any extra money toward attacking the smallest balance until it’s completely paid off.
• Once the smallest debt is gone, roll over the money you were paying on it into payments toward the next smallest balance.
• Repeat this process until all debts are paid off.

Why It Works:

The psychological boost of crossing debts off your list can be a powerful motivator. Seeing small wins early on often builds the confidence and discipline to stick with your plan.

Example:

• Credit Card #1: $500 balance, $25 minimum payment
• Personal Loan #1: $1,200 balance, $50 minimum payment
• Credit Card #2: $3,000 balance, $75 minimum payment

Start with Credit Card #1 by putting as much extra money as possible toward it (e.g., $200 per month). Once it’s fully paid, take the $25 minimum payment from that card and add it to Personal Loan #1’s payment. Now you’re paying $75 per month toward Loan #1, reducing its balance faster. Each time you eliminate a debt, the amount you can contribute to the next one grows—just like a snowball rolling downhill.

Best For:

Those who feel motivated by quick wins and need a straightforward, confidence-boosting system to stay on track.

Drawbacks:

While this method can help you gain momentum, it doesn’t prioritize high-interest debts, which may cost you more money in the long run.

2. Debt Avalanche Method

If saving money is your top priority, the avalanche method may be the better choice. This debt repayment  method focuses on eliminating debts with the highest interest rates first, which minimizes the total amount of interest you pay over time.

How It Works:

• List your debts from the highest to lowest interest rate, regardless of balance size.
• Make minimum payments on all debts except the one with the highest interest rate.
• Direct all extra money toward the high-interest debt until it’s paid off.
• Once the highest-interest debt is gone, move on to the next highest-interest debt and repeat.

Why It Works:

By tackling high-interest debts first, you stop them from racking up even more costs. This method maximizes savings and gets you out of debt more efficiently than the snowball method.

Example:

• Credit Card: $1,000 balance, 25% APR
• Student Loan: $3,000 balance, 6% APR
• Auto Loan: $5,000 balance, 4% APR

Start with the credit card because its 25% APR costs you much more in interest every month. Dedicate as much as you can to this debt while making only the minimum payments on your student loan and auto loan. Once the credit card is paid off, apply that payment toward the student loan, and so on.

Best For:

People who are financially disciplined and motivated by saving money, rather than needing quick wins to feel progress.

Drawbacks:

Because high-interest debts often have larger balances, it might take longer before you fully pay off your first debt. For some, this can feel discouraging and make it harder to stick to the plan.

3. Debt Consolidation and Balance Transfers

Debt consolidation simplifies your payments by combining multiple debts into one, often with a lower overall interest rate. Likewise, balance transfer credit cards allow you to move high-interest credit card debt to a card with a lower (or even 0%) introductory rate for a specific period.

How It Works:

• Debt Consolidation: Take out a personal loan with a lower interest rate and use it to pay off multiple existing debts. You’ll now have just one monthly payment to manage.
• Balance Transfers: Transfer high-interest credit card balances onto a card with a lower promotional interest rate. Pay off as much as possible before the promotional period ends.

Why It Works:

Simplifying your debts into one payment makes it easier to manage your finances. Additionally, a lower interest rate can save you money and make it possible to pay off your debt faster.

Things to Watch Out For:

• Balance transfer fees: Most cards charge a transfer fee, typically 3-5% of the total amount moved.
• Expiration of promotional rates: Be careful not to rack up new debt on the balance transfer card once the 0% rate expires, as interest rates can skyrocket.
• Loan term extensions: While consolidation loans may lower your monthly payment, extending the term of repayment could result in paying more in total interest over time.

Example:

If you have three credit cards with the following balances and APRs:

• Card A: $2,000 at 18% APR
• Card B: $1,500 at 25% APR
• Card C: $3,000 at 20% APR

You could transfer all of these balances to a new credit card with a 0% introductory rate for 18 months. During this time, you focus on paying down as much of the balance as possible without accruing additional interest.

Best For:

People who want simplicity, a lower interest rate, or who have high credit card debt and qualify for good balance transfer or consolidation loan terms.

Drawbacks:

It requires financial discipline to avoid incurring more debt, especially with balance transfers. Research thoroughly and read all the fine print if considering this option.

Choosing the Best Debt Repayment Method for You

When it comes to paying off debt, there isn’t a single strategy that works for everyone. The method you choose should align with your financial goals, personal motivation style, and what feels realistic for your situation. By asking the right questions and doing some prep work, you’ll be able to identify a plan that sets you up for success.

1. Define Your Financial Goals

Having clear financial goals at the outset makes it easier to choose the repayment method that fits your needs. Take a moment to consider what matters most to you right now.

Ask Yourself:

• Are you motivated by quick wins and visible progress? If yes, the debt snowball method might give you the confidence boost you need to stay committed. This method prioritizes paying off smaller debts first, so you can knock them off your list quickly.
• Do you want to save as much money on interest as possible? If cutting costs is your top priority, the debt avalanche method may be the way to go. It focuses on high-interest debts first, saving you the most money in the long term.
• Would simplifying your payments reduce your stress? If juggling multiple due dates and amounts feels overwhelming, consider a debt consolidation loan or balance transfer card to streamline your obligations into a single monthly payment.

Examples:

• If you’re balancing several small credit card debts and staying motivated feels like a challenge, the snowball method offers quick wins to keep you on track.
• If you’re carrying high-interest credit card debt, the avalanche method may help stop the cycle of compounding interest from ballooning your balances.
• If you’re managing student loans and credit card debt but forget deadlines easily, consolidation could simplify things and help avoid late fees.

Being honest about your goals will guide your decision and keep you focused on what truly matters to you.

2. Consider Your Personality and Motivation Style

Your mindset and how you like to approach challenges also play a big role in finding the best debt repayment method. Paying off debt is as much a mental game as it is a financial one, so choosing a strategy that feels natural to you can make all the difference.

Assess Your Style:

• Do you love crossing tasks off a list? The snowball method appeals to task-oriented individuals because it lets you achieve small victories quickly by focusing on manageable goals.
• Are you a numbers or data-driven person? The avalanche method is all about efficiency. If you enjoy optimizing processes, this approach may suit your strengths as it provides long-term savings through smart prioritization.
• Do you feel anxious or overwhelmed by your debt? Consolidation can make life simpler by condensing multiple payment deadlines and amounts into one, allowing you to focus your energy on a single manageable payment each month.

Practical Tips:

• If you’re unsure what motivates you most, try using a small quiz like the “money personality test” offered on many financial literacy websites. You might discover whether you’re more emotionally driven or data-oriented.
• Set short-term goals aligned with your payment method. For example, if you’re using the snowball method, focus on clearing one small balance every two months. If you’re using the avalanche, track how much you’re saving in interest each month—it can be incredibly motivating to see those costs drop.

3. Do the Math

Once you’ve set your goals and identified your motivation style, it’s time to run the numbers. Looking at the financial impact of each method can help you make an informed decision about what makes sense for your specific situation.

Use Debt Repayment Calculators:

Free online tools such as Dave Ramseys Snowball Calculator or the Snowball vs. Avalanche tool on Undebt.It can show you how long each method will take and how much interest you’ll save in the process. These can speed up the process for you to figure out which debt repayment method works better for you.

Compare These Factors:

• Interest Savings: How much will you save by prioritizing high-interest debts?
• Time to Pay Off: Will a faster repayment method keep you motivated, or are you okay with a longer repayment period?
• Monthly Budget Impact: If your budget has little wiggle room, the snowball method might help you prioritize smaller, more achievable goals. However, if you can allocate more money toward high-interest debts without stretching yourself too thin, the avalanche method could be more efficient.

Examples of Calculations:

• Imagine you have three debts:
  • Credit Card – $1,000 balance at 25% APR
  • Student Loan – $3,000 balance at 6% APR
  • Auto Loan – $5,000 balance at 4% APR

Using the avalanche method, you’d focus on the credit card first since it has the highest APR, saving you the most in interest over time.
However, if you opted for the snowball method, you’d start with the student loan or auto loan if their minimum payments were more manageable, giving you quick wins to stay motivated.

Don’t Forget Emotional Value:

While math is important, don’t ignore how you feel about your debt. If a particular method seems overwhelming or demotivating, it’s okay to choose an approach that might cost slightly more but keeps you consistent.

Making Your Final Decision

Ultimately, the “right” debt repayment method is the one you can stick with. Debt repayment isn’t a race—it’s about progress and building better habits. Choose a method that aligns with your unique goals and personality, and remember to reassess periodically as your financial situation evolves. What works for you today may not be what you need six months or a year down the road, and that’s okay.

Start small, stay consistent, and celebrate every step forward. Each payment is proof that you’re taking control of your financial future—one decision at a time.

Staying Motivated and Avoiding Setbacks

Paying off debt isn’t just about numbers—it’s about staying motivated, being adaptable, and building new habits along the way. Think of it as a long-term commitment to your financial wellbeing. There will be highs and lows, but with the right strategies, you can keep yourself inspired—even when progress feels slow. Here’s how you can stay on track and avoid setbacks in your debt repayment journey.

Celebrate Small Wins

Paying off debt can feel like a never-ending process, but breaking it into smaller milestones makes it both manageable and rewarding.

How to Celebrate:

• Track Your Progress Visually: Use a chart, printable debt thermometer, or debt tracker app like Debt Payoff Planner to watch your balances shrink. These visual reminders boost morale!
• Set Milestones: Break your goal into chunks, like paying off 10% or clearing one credit card. Celebrate each accomplishment with something simple, like a movie night or a favorite treat—just make sure it fits your budget.
• Example: If you pay off your first $500, reward yourself with something meaningful but low-cost, like a picnic or a DIY project you’ve been wanting to try.

Small rewards can provide bursts of motivation to keep you going when the process feels slow.

Build an Emergency Fund

Unexpected expenses are one of the biggest derailers for debt repayment plans. Creating a small emergency fund—think $500 to $1,000 to start—can be your financial safety net. It prevents you from immediately resorting to credit cards when life throws a curveball.

Tips for Building an Emergency Fund:

• Start Small: Set aside a tiny amount from each paycheck, even if it’s just $10 or $20. Over time, these add up.
• Use “Found” Money: Got a tax refund or birthday gift? Funnel some of it into your fund.
• Separate It: Place emergency savings in a separate account to avoid dipping into it for non-emergencies.

By having cash for those “just in case” moments, you’ll avoid backsliding into more debt during emergencies like car repairs or medical bills.

Seek Support

You don’t have to tackle debt repayment alone. Leaning on others for motivation and advice can make the process feel less intimidating.

Ways to Find Support:

• Join Online Communities: Find like-minded individuals in forums like Reddit’s r/personalfinance or Facebook groups focused on debt payoff. Share your wins, ask for advice, or just vent when the process feels tough.
• Talk to a Financial Counselor: If you’re unsure about building a plan or just need encouragement, a financial counselor can help you strategize and provide accountability.
• Buddy System: Partner with a friend or family member who is also tackling debt. Compare notes, celebrate wins, and motivate each other.

Knowing that others are cheering you on (or going through the same thing) makes a big difference when you hit roadblocks.

Adjust When Needed

Life can be unpredictable, and sticking rigidly to the same plan may not always be realistic. Give yourself permission to review and revise your approach based on your current circumstances.

How to Stay Flexible:

• Reassess Regularly: Every 3-6 months, review your progress and monthly budget. Are your goals still practical? Do you need to adjust payment amounts or priorities? Does the debt repayment method you chose still work for you?
• Prepare for the Unexpected: If your income changes or expenses shift, focus on maintaining minimum payments while you regroup.
• Avoid Guilt: It’s okay if something slows you down temporarily. Adjust your timeline and keep moving forward when possible.

Remember, progress isn’t always linear, and being adaptable keeps you from feeling like you’ve “failed” when life happens.

Practice Patience and Persistence

Debt repayment is a marathon, not a sprint. It takes time to see noticeable results, and that’s okay. The key is to avoid letting slow progress discourage you.

Tips to Stay Patient:

• Focus on Progress, Not Perfection: Even if you only pay a little extra some months, you’re still making progress. Every dollar chipped away makes a difference.
• Avoid Comparisons: Your timeline is unique to you. What matters is that you’re working toward your goals, at your own pace.
• Celebrate Consistency: Showing up every month, even when it feels monotonous, is an achievement in itself.

Think of debt repayment as planting seeds. Though you may not see results overnight, consistent effort will eventually bloom into financial freedom.

Limit Temptation

Overspending can quickly derail your efforts. To prevent setbacks, find ways to avoid temptation and create an environment that encourages responsible choices.

Strategies That Work:

• Unsubscribe from Marketing Emails: Those “flash sales!” are designed to lure you into spontaneous purchases. Remove the temptation altogether by unsubscribing.
• Avoid Boredom-Buying: If scrolling online stores or window shopping is a habit, replace it with a more productive activity, like reading, crafting, or taking walks.
• Use Cash for Fun Spending: Withdraw cash for discretionary expenses so you don’t over-rely on credit cards. When the cash is gone, you know you’ve reached your limit.

Simplifying your financial environment makes it easier to stick to your goals without constant temptation pulling you in another direction.

Remember Your Why

When motivation dips, return to the reason you began your debt repayment journey. What are you working toward?

Ideas to Keep Your Why in Focus:

• Write It Down: Whether it’s “freedom from financial stress” or “saving for my first home,” write it and keep it somewhere visible, like your planner or phone background.
• Create a Vision Board: Fill it with images or quotes that inspire you, like pictures of travel destinations, your dream home, or your future business.
• Daily Affirmations: Remind yourself why this effort matters. Affirmations like “I’m building a stronger future” can help refocus your energy.

Knowing your “why” can keep you going when the process feels overwhelming. It’s not just about paying off debt—it’s about creating opportunity, security, and freedom for your future self.

Final Thoughts

Choosing the best debt repayment method takes time, commitment, and grit, but every small step forward is a win. Celebrate milestones, stay adaptable, and remember that setbacks are part of the process—not the end of it. Be kind to yourself, and focus on the bigger picture—financial freedom and a bright future await.

Stick with it—your progress adds up! What’s one small step you can take today to keep moving forward? You’ve got this! 💪