The Best Way To Pay Off Debt Is Easier Than You Think

I have avoided debt all of my life. It just does not make any sense to me to go into debt. If you are reading this, then you might already be in debt, and that is okay. You may be seeking a way out. You may have asked yourself “What is the most effective way to pay off debt?”. While there are many strategies out there, I am going to give you the most effective one, but be forewarned because it is not the most exciting way or the most clever way, just the most effective way to pay off debt.

The most effective way to pay off debt is to focus your efforts on the debt with the highest interest rate first. In order to pay off debt quickly, you will need to have some extra money in your budget to put towards paying the debt off. Paying the minimums on your debt will get you nowhere quickly. If you are disciplined and motivated to get out of debt and stay out of debt then consolidating may be an advantage to you. Make a SMART goal to get out of debt and be consistent, in no time at all you could be debt-free.

Pay Off The Highest Interest Rates First

To be the most effective in your journey to paying off all of your debt, you need to focus your efforts on paying off higher-interest debt first. Typically this would be credit card debt, credit card interest rates can vary by lender and by the user so be sure to find out your exact credit card interest rates, and put them in order from highest interest rate to the lowest interest rate.

Next on your list is any loan debt you may have. Some common loans would be student loans, auto loans, mortgages, and personal loans. Usually, the next highest interest rate would be personal loans, but again it is all dependent on your own personal interest rates. Gather all of these interest rates and add them to your list from largest interest rate to smallest interest rate.

You will be putting the most money possible towards your highest interest rate debt and paying the minimum payments on all other debt until all of them are paid off. At no point will you add any more debt. Below is an example of how the most effective payment strategy works;

Step 1:

  • Credit Card #1 – 20% = Put as much money possible towards this until paid off.
  • Credit Card #2 – 17% = Minimum payment.
  • Auto Loan – 6% = Minimum payment.
  • Student Loan – 5% = Minimum payment.
  • Mortgage – 4% = Minimum payment

Step 2:

  • Credit Card #1 = PAID OFF
  • Credit Card #2 – 17% = Put as much money possible towards this until paid off.
  • Auto Loan – 6% = Minimum payment.
  • Student Loan – 5% = Minimum payment.
  • Mortgage – 4% = Minimum payment

Step 3:

  • Credit Card #1 = PAID OFF
  • Credit Card #2 = PAID OFF
  • Auto Loan – 6% = Put as much money possible towards this until paid off.
  • Student Loan – 5% = Minimum payment.
  • Mortgage – 4% = Minimum payment

Step 4:

  • Credit Card #1 = PAID OFF
  • Credit Card #2 = PAID OFF
  • Auto Loan = PAID OFF
  • Student Loan – 5% = Put as much money possible towards this until paid off.
  • Mortgage – 4% = Minimum payment

I think you get the idea, continue through the steps until everything is paid off. This will only work if you have enough in your budget to pay more than the minimum payment for the highest interest rate debt, which brings me to my next point.

Pay More Than The Minimum Payment

You will be stuck in a vicious cycle where you will feel like you can never get out if you do not make more than the minimum payments on your debt. This is because high-interest rate charges will build up your balances close to where they were before, even after you made your minimum payment (This is true for credit card debt, not necessarily loan debt where final payment has a due date.)

If you feel like you cannot make more than the minimum payments then you need to stop and re-evaluate your lifestyle to see where your money is being drained and fill up the hole. It is possible for nearly everyone to get out of debt. Focusing your efforts on eliminating your liabilities will take small sacrifices in other areas, but if you are reading this then you must be serious about getting out of debt.

So with this strategy, you will only be paying the minimums on your lower interest rate debts while viciously attacking your highest interest rate debts. Once you get your highest interest rate paid off, it will make the next one easier, and so on until there is no more interest to pay. Keeping track of all of your different debts can be bothersome, so if possible and favorable; debt consolidation might be right for you.

Consolidate Your Debt If Possible

Consolidating in this case simply means simplifying your debt repayment strategy. In fact, I am a big fan of simplifying everything in your finances. Simplifying your debt could also be a tactical way of paying less interest on your balances. For example, Credit cards can be consolidated through the use of balance transfers, and loans could be consolidated through refinancing.

Credit card balance transfers may give you an opportunity to pay less in interest while paying off your debt if you use them smartly. Many credit cards offer introductory interest rates and balance transfer rates. Some of these introductory rates are 0% for one year or more, so it can be very advantageous for you to transfer your high balance credit card debt and pay it off during the introductory rate period so that you don’t pay any more interest!

The lenders are not offering this out of the goodness of their hearts, they do this in order to get your business. They are counting on you to fail to pay off the balance and they even hope that you build up your balance larger so that they can increase their profits. So only take this approach if you are ready to be diligent, motivated, disciplined and ready to get rid of your debt once and for all.

The same goes for loans, although there might not be as great of introductory offers of 0% like credit cards, you may be able to refinance with a more favorable interest rate. You may also be able to consolidate loan payments into a single payment at a lower interest rate. This could work well for example if you have multiple student loans at varying interest rates. Consolidating all these loans into one payment could get you a lower interest rate and could make your effective debt pay off strategy that much easier because you have fewer payments to worry about.

Make A SMART Goal

A SMART goal is one that is Specific, Measurable, Attainable, Realistic, and Time-Oriented. There are slight variations in the acronym, but the primary message is the same. The way we want to set up our goal of paying off debt is to make sure that our goal is designed with the SMART format. If our goal does not meet ALL of the requirements of a SMART goal then we need to make some minor tweaks to get it just right

  • Specific

If we want to be debt-free, then we need to have a specific goal in mind. Just plainly saying “I want to pay off all of my debt as soon as possible” is not very specific. More appropriate would be to say “I want to pay off all $30,000 of my debt by November 1st of next year. Now, this is a specific goal. This sounds like a lot to take on, so to make it easier, you could break up your bigger goal into smaller goals.

Instead of saying “I want to pay off $30,000 in one year” you can divide it into “I want to pay off $10,000 in the next 4 months.” That sounds like it is a lot easier to do, but it is still on track with the original goal. The point is to be as specific as possible in your debt pay off goal, or any goal for that matter.

  • Measurable

Paying off debt is a great goal because it is easily measurable. There is already a dollar value assigned to it. You either paid off that $10,000 last quarter or you didn’t. Goals that have numbers attached to them are more easily measurable. So make sure to know how much you owe including any unpaid interest that WILL accrue so that you will have a specific dollar amount that you need to pay off while measuring your progress along the way.

  • Attainable

A goal that is attainable is broader in my eyes. By that I mean that it must be something that anyone could achieve if they really wanted to. Becoming debt-free is attainable for anyone in my opinion. It will be easy for some, and harder for others, but the point is that it is possible and therefore it is attainable. Paying off debt is nothing new, many have done it before you and many will do it after you, so you do not have to worry about attainability when it comes to your goal to pay off debt because it is possible. You do on the other hand need to realize what is realistic for your situation.

  • Realistic

Just because something is attainable, does not mean it is realistic for everyone. Paying off $30,000 of debt in one year is attainable, but it is not realistic for everyone to achieve that in that time frame. Only you can truly know what is realistic for you at any given time. You have to shape your debt pay off goal to be realistic for your situation.

  • Time-Oriented

This goes back to the very first letter in SMART. Time oriented goals tend to be very specific by nature. All of the factors of SMART complement each other, time-oriented goals give you something to look forward to and allow you to track your progress. If you do not have a deadline to reach your goal then you may never end up reaching it. The same goes for paying off debt, you need to have a deadline that you set for yourself that is realistic for your situation.

Be Consistent And Stay The Course

Once you have your plan in place, the only thing left to do is follow it consistently and let time pass by and eventually you will reach the end where all of your hard work will formulate into you achieving your goal. Becoming debt-free is very easy in theory, but difficult in practice. Those that have climbed themselves out of the dark hole of debt have done so patiently and consciously. It is no different for you, if you follow all of these steps then a debt-free life is almost certain for you.


Of all of the ways to pay off all of your debt, the most effective is to pay off the higher interest rate first. Period. This makes the most logical sense too because it helps you avoid paying less in interest charges and therefore lowers your debt dramatically faster. For this to work, you need to be making more than the minimum payment on your highest interest rate debt, sometimes much more depending on your time frame. Consolidating could make this process easier because you could get a more favorable interest rate and payments could be simpler when there are less of them to make. The entire plan can be put together by making one SMART goal and consistently sticking it out until the day comes where you are debt-free.

Zachary Smith

Zach is passionate about personal finance, especially when it comes to financial independence. He is a heavy index fund investor and budget connoisseur that also loves traveling, exercise, and the great outdoors. See his full bio here

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