The First Step: Know What You Owe
Before you can pay off debt effectively, you need a clear inventory. For each debt, note:
- The balance
- The interest rate (APR)
- The minimum monthly payment
- The lender
This table transforms vague anxiety about debt into specific, actionable data. Many people avoid looking directly at their debt precisely because seeing the full picture feels uncomfortable — but clarity is the starting point for progress.
Avalanche vs Snowball
Two popular strategies for prioritising debt repayment:
The debt avalanche orders debts by interest rate, highest first. You pay minimums on all debts except the highest-rate one, throwing every extra dollar at that one. When it's cleared, you roll that payment amount to the next highest-rate debt.
Mathematically, the avalanche saves the most in interest — you're eliminating the most expensive debt first.
The debt snowball orders debts by balance, smallest first. The mathematics is worse — you may be ignoring a high-rate debt to clear a small low-rate one. But psychologically, the quick wins from eliminating small balances completely build momentum and motivation that keeps people going.
Studies suggest people are more likely to successfully clear all their debt using the snowball method because they don't abandon the process. The "right" method is the one you'll stick to.
The Power of Extra Payments
Any payment above the minimum directly reduces the principal balance, which reduces the interest charged in subsequent months. Small extra payments compound over time.
On a $15,000 credit card balance at 20% APR, adding just $100 per month above the minimum payment can cut years off the repayment timeline and save thousands in interest.
Even irregular extra payments — a tax refund, a bonus, a small windfall — make a meaningful difference applied to debt.
Avoiding New Debt While Paying Off Old
Paying down debt while continuing to accumulate new debt on the same account is like bailing out a boat with the tap open. Temporarily restricting access to credit during a debt repayment phase — cutting up the card, removing saved payment details — reduces the friction required to resist new charges.
The goal is forward momentum: each cleared debt frees up cash flow for the next.