Create a debt payoff plan
First, decide which debts to pay off early. It’s better to pay off high-interest debt — such as credit-card debt — before eliminating lower-interest debt like mortgages and student loans.
The average credit card interest rate as of January 2025 is 21.47%. In contrast, mortgage rates are in the 6 to 7% rate and the interest rate on federal student loans ranges from 6.5 to just over 9%.
Not only do mortgages and student loans come with lower interest, but unlike credit-card debt, the interest on mortgages and student loans may be tax deductible.
If you have federal student loans, you can even choose different repayment plans, including an income-driven payment that limits monthly payments to a set percentage of income. These plans eventually eliminate any remaining debt after 20 to 25 years of on-time payments.
Once you’ve decided which high-interest debt to tackle first, aim to pay it off ASAP by making extra monthly payments, using either the Snowball or Avalanche method. It’s up to you which method you choose.
Snowball Method. With the Snowball method, you pay off debt with the lowest balance first to succeed quickly and stay motivated.
Avalanche Method. With the Avalanche technique, you pay down the very highest-interest loan first to minimize interest, leaving you with more money in the bank to pay off other debts.
If you think you'll struggle to stay on track, choose the Snowball approach. If you want to pay the least amount of interest you can, then the Avalanche is right for you.
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Learn MoreConsider consolidating debts
There’s another alternative to paying off high-interest debt efficiently: debt consolidation.
Debt Consolidation. With debt consolidation, you get a new loan — preferably at a low interest rate — to pay off multiple existing debts.
For example, you might get a personal or home equity loan to pay off your credit cards, car loan or other outstanding bills. With just one monthly payment to make, you don’t have to decide how to prioritize your debt payoff order.
If your new loan has a lower interest rate, you can apply more of your payment to pay down principal than interest on the debt. All of this depends on whether you qualify for a new loan at a lower rate.
You probably don't want to consolidate federal student loans, even if you can get a lower rate because federal loans offer payment flexibility, the possibility of future loan forgiveness, and the income-driven plans mentioned above.
Explore ways to increase your income
Finally, if you want to get debt-free faster, consider increasing your income to double up on monthly payments or more. This may mean working overtime, landing a better-paying job or working a side hustle.
The good news is that since you are committed to turning your life around and improving your finances, you can get on the right path to building the more secure future you deserve.
You just need to decide which of these steps to take and then start working on your path toward financial freedom.
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