Debt Payoff Strategies for Beginners

Last year, U.S. household debt reached an astronomical $17.29 trillion. For most Americans, the goal is to get out of debt the right way and as soon as it is financially possible. But the question is, what steps should you take to understand debt and learn how to combat it? Let’s look at some debt payoff strategies for beginners.

Step 1 – Understand Your Debt

You should start by educating yourself on the differences between good debt and bad debt.

Examples of Good Debt:

Mortgages: When the borrower finances a home in an area with rising property value.

Business Loans: Used to kickstart or expand a business, potentially becoming an asset for the borrower’s future.

Student Loans: These types of loans are taken out to allow students to achieve educational goals that can lead to a career they enjoy and can profit from.

Car Loans: Although it is not a lifetime loan, these types of loans can assist the car buyer with getting from point A to point B with a reliable vehicle they can pay on.

Examples of Bad Debt:

Unchecked Credit Card Debt: Accumulating debt without reaping benefits such as rewards or cash back, often with rising interest rates.

Upside-Down Loans: Loans that started manageable but escalated beyond the borrower’s means over time.

Payday Loans: Offering quick cash with exorbitant interest rates, often trapping borrowers in a cycle of debt.

Car Title Loans: Risky loans where the borrower surrenders their vehicle, and defaulting can result in losing their car.

Step 2 – Explore Debt Payoff Strategies

The Snowball Method

The snowball method is a debt payoff strategy that focuses on eliminating debts one at a time, starting with the smallest balances. Here’s how it works:

  1. List Your Debts: Write down all your debts, including credit cards, personal loans, etc. Order them from smallest balance to largest balance.
  2. Minimum Payments for All: Make sure you’re at least paying the minimum payment on every debt each month. This can help keep you from falling into delinquency.
  3. Attack the Smallest: Take extra money you can afford to pay towards your debts and put it all towards the smallest debt on your list.
  4. Rollover the Payment: Once you’ve completely paid off the smallest debt, celebrate! Take the money you were paying towards that debt (minimum payment + extra amount) and add it to the minimum payment of your next smallest debt. This is like rolling a snowball, growing your payments as you go.
  5. Repeat and Conquer: Keep making minimum payments on all debts and throwing extra money at the smallest remaining debt. Repeat steps 3 and 4 until you’ve paid off all your debts!

Benefits of the Snowball Method:

  • Motivating Quick Wins: Seeing debts disappear quickly can be a huge motivator to stay on track.
  • Psychological Boost: The feeling of accomplishment from paying off debts can keep you engaged.

Things to Consider:

  • Time vs. Money: This method may take longer than prioritizing debts with the highest interest rates. You may end up paying more in interest overall.
  • Focus on Behavior Change: The snowball method is a strategy, but the key to success is addressing the underlying causes of your debt.

The Avalanche Method

The avalanche method is a debt payoff strategy that prioritizes debts with the highest interest rates. By tackling these expensive debts first, you save money in the long run. Here’s how it works:

  1. List Your Debts: Write down all your debts, including credit cards, personal loans, etc. Include the interest rate (APR) for each debt. Order them from highest interest rate to lowest interest rate.
  2. Minimum Payments for All: Make sure you’re at least paying the minimum payment on every debt each month.
  3. Attack the Highest Interest: Take extra money you can afford to pay towards your debts and put it all towards the debt with the highest interest rate on your list.
  4. Pay Down the Principal: Once a debt is paid off completely, focus your extra payments on the next debt on your list. This can allow you to concentrate your payments on the remaining principal balance.
  5. Repeat and Save: Keep making minimum payments on all debts and throwing extra money at the debt with the highest remaining interest rate. Repeat steps 3 and 4 until you’ve paid off all your debts!

Benefits of the Avalanche Method:

  • Save Money on Interest: This method saves you the most money overall because you’re prioritizing the debts that cost you the most.

Things to Consider:

  • Slower Payoff Satisfaction: It may take longer to see individual debts disappear compared to the snowball method.
  • Discipline Required: It can take more discipline to stay focused on the long-term savings goal rather than the quick wins of the Snowball Method.

Remember: The avalanche method doesn’t recommend waiting to pay down the principal on any debt. Once you’ve made significant progress on high-interest debt, you can shift some focus to paying down the principal on other debts while still prioritizing high-interest payments.

Debt Consolidation

Debt consolidation is a strategy to help simplify and potentially reduce your debt burden. You take out a single loan to pay off multiple existing debts. Ideally, the consolidation loan has a lower interest rate than your current debts, freeing up some money each month.


  • Lower Interest Rate: This can save you money in the long run and make paying off your debt more manageable.
  • Simpler Payments: You only have one monthly payment to track instead of juggling several bills.

Things to Consider:

  • Collateral: Some consolidation loans require collateral, such as your house or car. If you can’t repay the loan, you risk losing that collateral.
  • Loan Term: The consolidation loan might have a longer repayment term than your current debts. This means you’ll be in debt for a longer period, even though your monthly payment might be lower.

Step 3 – Find Ways to Stretch Your Income

Budget with the 50/30/20 Rule

This is a popular budgeting method where you split your income into three categories:

  • Needs (50%): Essential expenses such as rent, groceries, and utilities.
  • Wants (30%): Fun stuff like eating out, entertainment, and shopping.
  • Savings and Debt Payments (20%): Put this money towards your financial goals, like paying off debt.

Cut Expenses

Look at your monthly bills and see where you can save. Here are some ideas:

  • Reduce Unused Subscriptions: Cancel services you don’t use regularly, such as streaming services.
  • Plan Your Meals: Cook at home more often instead of eating out or getting takeout.

Find Extra Income

There are ways to bring in more cash alongside your main job:

  • Side Hustles: Ride-sharing, babysitting, tutoring, online sales, freelance work, or handyman services are all options.
  • Sell Unused Items: Get rid of things you don’t need by selling them online or through social media.

FAQs: Debt Payoff Strategies

What is the best payoff strategy for beginners?

The key is finding a plan that fits your personality. Need quick wins to stay motivated? The snowball method tackles your smallest debts first, giving you a fast sense of accomplishment. Mathematically minded? The avalanche method prioritizes high-interest debts, saving you the most money long-term. Want to simplify things? Debt consolidation combines your debts into one loan, streamlining your payments. No matter your choice, consider side hustles and smart budgeting to help accelerate your debt-free journey.

How do I track and document my debt?

Track Your Debts:

Use a spreadsheet or paper with columns for creditor name, current balance, interest rate, account type (e.g., credit card, loan), and minimum payment. Display this prominently, like on a refrigerator or a dedicated to-do board.

Consider debt tracker apps such as, Tally, Qoins, Debt Payoff Planner, or Debt Manager. These can help streamline tracking and potentially offer additional features.

Document Your Debts:

Maintain physical receipts and paper statements as proof of your debt payments. Organize these documents in labeled folders for easy access. Regularly save electronic statements in a secure digital filing system. Consider cloud storage for an extra layer of redundancy.

How can I stay motivated on my debt payoff journey?

Staying motivated to pay off debt can be tough, but remember it’s temporary. Set goals for your debt-free future, celebrate milestones big and small, and focus on your “why” — the reason you’re doing this.

How can I build my credit while paying off debt?

Use CreditBuilderIQ services to get the tools you need to build your credit. Did you know more than 1 in 3 consumers have an inaccuracy on their credit report? Using CreditBuilderIQ to dispute inaccuracies with the major credit bureaus can be an effective way to build your scores.