7 Strategies for Paying Off Debt

Paying off debt can feel like a huge mountain to climb, especially when you're balancing other financial goals like saving for a home, investing for the future, dealing with an unexpected major expense or simply building an emergency fund. However, with the right strategies, you can successfully eliminate debt and free up resources to pursue your financial dreams.

In this blog, we’ll explore several proven strategies to help you get out of debt and stay debt-free. Whether you're working on paying off credit card debt, student loans or a mortgage, if you’ve found yourself stuck, use these tips to help you get back on track!

1. Create a Budget and Stick to It

A detailed budget is the foundation of every debt payoff plan. By tracking your income and expenses, you can identify areas where you might be overspending and redirect those funds toward debt repayment.

This also allows you to identify monthly expenses that you might be overpaying on. For example, it may be time to shop auto insurance rates to see if you could save some additional money.

How to Build a Budget

Start by listing your sources of income and all monthly expenses, including fixed costs like rent or utilities and discretionary spending like dining out and entertainment. Once you have a clear picture of your cash flow, allocate a portion of your income toward debt repayment and a portion towards saving. Even if you are prioritizing debt payoff, it’s still important to continue saving what you can to prevent the debt cycle from continuing should an unexpected expense arise.

Budgeting Tools

External resources like Nerdwallet’s free budget planning tool and others offer free templates to get started. Additionally, using one of OMB Bank’s many online calculators to estimate how long it will take to repay your debts can help you plan more effectively.

Apps like PocketGuard or YNAB (You Need a Budget) can be invaluable for staying organized and disciplined as you’re budgeting and can be easily updated from your phone on-the-go.

2. The Avalanche Method: Tackle High-Interest Debt First

What is the Avalanche Method?

The avalanche method involves paying off the debt with the highest interest rate first while making minimum payments on all other debts. This strategy saves you the most money in the long run by reducing the amount of interest you pay overall.

How It Works

For example, if you have multiple debts—credit card balances, student loans and a car loan—identify which one has the highest interest rate and focus all your extra money on that debt. Once it's paid off, move to the next highest interest rate debt and continue the same way.

Why It’s Effective

By eliminating high-interest debt first, you can get out of debt faster without spending a fortune on interest. Tools like Credello’s debt avalanche calculator can help you estimate your payoff time.

3. The Snowball Method: Attack Lowest Balance First

What is the Snowball Method?

An alternative to the avalanche method, the snowball method is another popular strategy for paying off debt, but it focuses on the smallest debt first, regardless of interest rate. The idea is to gain momentum by quickly eliminating smaller balances.

How It Works

Start by paying off the smallest debt first while making minimum payments on larger debts. As you eliminate each small balance, you’ll feel a sense of accomplishment and motivation to keep going. Once the smallest debt is paid off, apply that payment to the next smallest debt. Do this for each debt and enjoy the cumulative effect it provides.

Why It’s Effective

Psychologically, the snowball method is highly effective because it gives you quick wins. It’s ideal for those who need motivation to stay on track with their debt repayment plan or who find the avalanche method too daunting.

4. Consolidate Your Debt

What is Debt Consolidation?

Debt consolidation involves combining multiple debts into a single loan, often at a lower interest rate. This makes managing your debt easier, more organized and can reduce the total amount you pay in interest.

When to Consider Debt Consolidation

If you have high-interest credit card debt, student loans or multiple personal loans, consolidating them into a single loan may lower your monthly payments and reduce your interest rates.

Explore OMB’s personal loans to help simplify your payments.

Benefits of Debt Consolidation

Not only does this strategy streamline your debt payments, but it can also improve your credit score by reducing your credit utilization ratio, provided you don't add new debt.

5. Automate Your Payments

One of the best ways to ensure consistent progress in paying off your debt is to automate your payments. By setting up automatic transfers from your checking account to your loans or credit cards, you reduce the risk of missing a payment. It can also make prioritizing debt payoff easier, since you don’t have to go in and make manual payments.

Automation not only keeps you organized, but it also helps you avoid late fees and penalties, which can add to your overall debt.

How to Set It Up

Many banks and credit card companies allow you to automate your minimum payments, or you can schedule larger payments to accelerate your payoff plan. Setting up an automatic payment schedule will keep you on track without worrying about remembering due dates.

You can easily set up automated payments through OMB’s online banking platform.

6. Increase Your Income

While cutting back on expenses is essential, increasing your income can dramatically accelerate your debt repayment. The extra income can go directly toward your debts, reducing the payoff time.

Ways to Boost Your Income

You can take on a side job or pick up freelance gigs, as well as sell unused items to generate extra cash. We have an article dedicated completely to side hustles you can check out for ideas and inspiration to make extra dough each month.

You could also consider applying for higher-paying roles or negotiating your current salary.

7. Seek Professional Advice if Necessary

When to Get Help

If your debt feels too overwhelming or you’re not making progress, it might be time to consult a financial advisor or a credit counseling agency. Professional guidance can help you develop a tailored plan that suits your specific situation.

Resources for Professional Help

Certified credit counselors can provide advice on budgeting and debt management. Non-profit organizations like the National Foundation for Credit Counseling offer free or low-cost services to help individuals get out of debt.

When looking for a credit counselor, consider factors such as:

• Accreditations
• Fees
• Consumer complaints through the Better Business Bureau
• Success rate
• Time in business

Debt Settlement

If you're considering debt settlement services, make sure to do your research to avoid becoming a victim of scams. The Federal Trade Commission provides useful information on how to identify and avoid fraudulent debt settlement companies.

As a good rule of thumb, debt settlement should be one of the last resorts to avoid hurting your credit even further.

Achieving your financial dreams starts with eliminating debt. By following these strategies, you’ll be in a much stronger position to not only pay off your existing debts, but to also build a financially secure future. It’s never too late to start, and every small step you take brings you closer to financial freedom.

Whether you’re looking for lower-interest loans, debt consolidation options or professional financial advice, OMB is here to help you on your journey to financial success. By expressing interest, you’ve taken the first step to becoming debt-free. Great job!

OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.