A Complete Guide to Debt Payoff Strategies

Debt payoff strategies are designed to help you clear your debts in a way that suits you. There are many different payment methods available, from debt snowball and debt management, right on through to more extreme measures like bankruptcy. 

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There is no “one-size-fits-all” solution. The one that works for you will depend on how far into the red you are and how likely you are to claw your way back into the black. In this guide, we’ll cover everything you could ever want to know about debt payment strategies, helping you to find the right one and quickly clear student loan debt, credit card debt, and personal loan debt.

What you Should Consider When Choosing a Debt Repayment Strategy?

The ideal strategy for one person may be a complete disaster for another. As an example, think about the debt snowball method, which we’ll discuss in greater detail below. This contrives to clear the smallest debts first, giving you the motivation to work towards the bigger ones.

But what if you have multiple small loans and credit cards charging you between 5% and 16% and one massive credit card debt charging 26%? If all your attention and your extra cash go towards your smallest debts, this big one will be left untouched—allowed to run rampant, accumulate masses of interest and do endless damage.

It’s important to weigh up the pros and cons first, to calculate how much one method will save you over another. That’s why we’ve offered up some advantages and disadvantages and have split our proposed debt payment strategies into two options: Credit card debt and personal loan debt.

Credit Card Debt Repayment Strategies

These strategies can help if you have multiple credit card debts, with escalating monthly payments and high-interest rates. But they’re not specific to credit card debt and can help with other forms of debt as well. 

The Debt Snowball Method

We alluded briefly to the debt snowball method above. The idea is quite simple: You clear your smallest debt first and then move onto the next one. 

  • Step 1: Continue to meet your monthly payment obligations.
  • Step 2: Use any extra payments you have to clear the smallest debt.
  • Step 3: Once the smallest debt has cleared, put all those extra payments towards the next smallest one.

The debt snowball method is so-named because as a snowball rolls along the ground it gathers more momentum, picks up more snow, and gets bigger and stronger.

With the debt snowball method, it’s important that you don’t close credit card accounts after they’ve been paid off. Keep them active, but only use them in emergencies. This will ensure your credit utilization score stays high, which in turn will keep your credit score high.

The Pros and Cons of the Debt Snowball Method

The debt snowball method is not without its issues and won’t work for everyone. If you can’t pay down debt or increase payments, what hope do you have?


  • Your credit score will gradually improve as debts clear.
  • It can motivate you to keep going after you see multiple debts drop away.


  • High-interest rate debt can remain untouched, gathering momentum and doing damage as you focus on lower interest rate debts.
  • It can neglect other serious debts, such as student loan debt.
  • It may take some time for you to improve your financial situation.
  • Some borrowers will struggle to find the necessary budget to make larger payments.

The Debt Avalanche Method

The debt avalanche method is often mentioned in the same breath as the debt snowball method. There are similarities in the sense that both require increased payments, placing more of a demand on your budget and strain on your financial situation, while also helping you to chip away at your debt one step at a time.

While the snowball method focuses on the smallest debts, the avalanche method emphasizes the importance of clearing the ones with the highest interest rate. By prioritizing interest rate over balance, you’re potentially putting more money in your pocket at the end of the term.

The Pros and Cons of the Debt Avalanche Method 

The debt avalanche method has similar issues as the debt snowball method, but there are some notable benefits as well.


  • Eradicating debts with a high-interest rate can potential increasing your capacity to make greater monthly payments.
  • Clearing debts one at a time can motivate you going forward.
  • You should pay much less over the term of the loan.
  • It can improve your credit score and financial situation.


  • Not always easy to find the extra money required to clear high-interest debts quickly.
  • It may take a while to see the benefits.

Tips for Making Avalanche/Snowball Strategies Work

  1. List all of your debts, going from the highest to the lowest and including every credit card debt, student loan debt, and personal loan.
  2. Sell luxury items that you no longer need. The vast majority of American households contain designer clothes and accessories that no longer fit, jewelry that isn’t worn, video games that have been completed, books that have been read, and expensive tech that isn’t touched and becomes more obsolete with each passing day.
  3. Spend less money on restaurants and takeout. American families spend in excess of $3,000 a year just on eating out—this could be used to clear a debt! Sit down for family meals at home instead.
  4. Stop spending so much money on day-trips and vacations and look for cheaper ways to treat the family, from picnics in the park to visiting family in the next state.
  5. Use all of the money that you save to clear your smallest/highest interest debts and continue with your chosen payoff strategy.

Balance Transfer Repayment

A balance transfer moves all credit card debt onto a new card. Balance transfer cards provide 0% introductory interest rate periods, allowing you to focus on clearing the balance without the high-interest rate getting in the way.

As with other strategies, it’s important to leave cards active once you clear the balance, otherwise your utilization score will drop.

The Pros and Cons of Balance Transfer Repayment

Although a balance transfer credit card can provide a quick and easy solution, it’s not without its problems.


  • A fast way to clear high-interest rate credit card debt.
  • Pay less over the term of the loan.
  • No high-interest rate to cover every month.
  • Pay more of the balance with every repayment.


  • Balance transfer cards typically have very high-interest rates once the introductory period ends.
  • May be high penalties and other payments to cover.
  • Requires a new card, which means your credit score will take an initial hit.
  • May not be able to help with all credit cards.

Tips for Making Balance Transfer Cards Work

  1. Compare and contrast all cards and don’t simply settle for the first one you find or the first offer you receive.
  2. Calculate how long it will take you to clear the debt and look for a card with an introductory rate that affords you the time you need.
  3. Read the terms and conditions and make sure you know how high the APR will be when the introductory period ends and what additional charges will be levied.
  4. Remember that rate shopping, whereby all hard inquiries are merged into one, only applies to loans and not to credit cards. Read more about this in our guide to rate shopping periods.
  5. Avoid accumulating additional debt on the card. It’s there to help you clear what you have, not to accumulate more.

Debt Settlement

Debt settlement requires outside intervention in the form of a debt specialist. This specialist will work on your behalf to clear your debts one by one. They do this by negotiating with creditors on your behalf, using the money you deposit into a secure third-party account.

There are multiple companies out there that provide this service and the industry is witnessing improved regulation and security, making it a safer place for Americans to eradicate their debts.

The Pros and Cons of Debt Settlement

Debt settlement is often considered to be a last resort solution, one that can cause multiple problems but will ultimately lead to a debt-free life.


  • Debts will be cleared completely.
  • You will pay much less than you would without debt settlement.
  • The debt settlement company only takes their share at the end of the settlement process and it’s always as a percentage of the money they save you.


  • It can be a lengthy process.
  • Your accounts may enter collections and you may be sued while undertaking the settlement process.
  • It can hurt your score in the short-term.
  • They may request that you stop making payments and use that money to fund the settlement process, leading to many complications.
  • There is no guarantee that they can settle all debts but they may still charge even if they do not.

Tips for Making Debt Settlement Work

  1. Always be on the lookout for scams. Scams are common in the debt relief sector and the majority of them can be found in the debt settlement industry. Look for certification, accreditations, reviews, complaints and BBB pages. 
  2. Ask the company how much they charge before going any further. Their fee will be a percentage of the total money they have saved you or a percentage of your total debt. Calculate it and use the figure you arrive at to compare with other settlement companies.
  3. Don’t persist with debt settlement companies that try to pressure you into signing up for their program. Look for good customer support and honest advice, as this suggests that they are there to help and not just to sell.
  4. Persevere with your questioning if you’re being given vague answers and move onto the next company if they still insist on ambiguity.
  5. Caution is advised with any company that makes a promise to settle all of your debts for a specific amount. Confidence is okay, but promises are not—there is no way of knowing whether a creditor will settle and how much they will settle for.
  6. Understand the process before you begin and learn exactly what is expected of you every month before you commit to anything.

Loan Debt Repayment Strategies

Personal loan repayment strategies work towards the same goal as credit card payoff strategies. The difference is that they cater more towards lower interest rates and allow for longer repayment periods and more forgiving lenders. 

This is because credit cards are unsecured, which means they are not backed by any collateral and the lender doesn’t have much recourse for action if anything goes wrong. A loan company, however, is often backed by an asset such as a house or car. 

Debt Management 

Debt management is a simple and low-risk way of improving your financial situation. It is designed to keep your budget strong and your finances stronger, and it’s often provided by a credit counseling service. 

Debt management programs follow short credit counseling sessions, during which an experienced counselor will ask questions about your budget and your financial situation, before recommending the best course of action. If they determine that debt management is what you need, they will guide you through the process.

They will then negotiate a plan with your creditors, getting them to agree to a reduced interest rate and a manageable monthly payment.

The Pros and Cons of Debt Management

One of the best things about debt management is that it’s conducted by companies who have your best interests at heart and will always advise as to whether or not this process is right for you. If not, they may recommend something else to help you clear your personal loan debt.


  • The process is much less demanding and does less damage to your credit score than other payoff strategies.
  • It can help you to manage all your debts.
  • It does not have a direct impact on your credit score but may hurt it in other ways.
  • It can reduce the rate of interest you pay in personal loans and credit card debt.


  • It’s not free and there is both a start-up fee and a monthly fee.
  • You will be required to close all but one credit card, which can damage your credit utilization rate.
  • If you miss a payment, the lender may cancel the agreement and you’ll return to paying your previously high-interest rate.

Tips for Making Debt Management Work

  1. Always deal with reputable credit unions and credit counseling services and don’t trust any company that doesn’t have accreditations.
  2. Use a free consultation in the first instance to make sure that this service is right for you.
  3. Hang-up on any so-called credit counselors that are only interested in trying to sell you resources or expensive plans. You need a counselor, not a salesperson.

Debt Consolidation Loan

A consolidation loan can be acquired by yourself or via a specialist company. In the first instance, you acquire a personal loan that is large enough to cover all your debts and earn and a lower interest rate, and you use this to turn multiple debts into one.

As for the latter option, this can come with numerous issues, as discussed in our pros and cons below.

The Pros and Cons of Debt Consolidation

These pros and cons refer to debt consolidation via a specialist company or provider, which is the most popular way to consolidate debts today. Read our guides to the best debt consolidation companies and avoiding debt consolidation scams to learn more about this deceptively complicated process.


  • You will pay less money every month.
  • You will have more money in your pocket to go towards other expenses or to clear more of the debt’s balance.


  • Your monthly payments will reduce at the expense of a longer loan term.
  • You will pay much more over the course of the loan.
  • The terms are not always as straightforward and beneficial as they first seem.

Tips for Making Debt Consolidation Work

  1. Look at the bigger picture as these companies rely on you focusing on the short-term. 
  2. Remember that debt consolidation companies are there to turn a profit, not to help you.
  3. Don’t assume that a lower interest rate is always better. APRs are calculated based on daily compound interest and greatly increase with age, so the term length is just as important as the interest rate.
  4. Prepare for your credit score to take a hit but don’t despair as it will improve in time.

Other Debt Repayment Options

The above options can help you to clear multiple high-interest rate debts, but they are not the only solutions afforded to you. There are two we didn’t mention and these sit either side of the scale: From the least extreme to the most; the first resort to the last.

Credit Counseling

As the name suggests, credit counseling is designed to help you manage your debts, guiding you through the chaos and providing solutions that help you attain financial freedom. This service is provided for free by credit unions and non-profit financial agencies and it’s also offered as by debt settlement and consolidation companies, who provide it during an initial consultation.

It’s free and if you work with a non-profit credit counseling company, it should also be honest. They will help you with budgeting and money management and if they deem that you need further assistance, they will recommend some of the strategies and the services that we have already discussed in this guide.


Bankruptcy is often seen as an easy way to escape the clutches of debt, but it can have a devastating impact on your credit score and leave a mark that remains for between 7 and 10 years. 

There are two forms of bankruptcy available to individuals: Chapter 7 and Chapter 13.  You can discuss which option is right for you with a bankruptcy expert or lawyer, but Chapter 7 is by far the most popular. This will liquidate all property and then distribute the money to creditors. Some property is exempt, but most will be liquidated by a trustee.

Chapter 13 can seem a little more manageable and less destructive as foreclosure is not a necessity. The focus is more on creating a repayment plan that allows the borrower to clear debts in a way that doesn’t destroy their finances.

Summary: Choosing a Debt Repayment Strategy

We’ve discussed all popular debt payoff strategies in this guide, giving you the information you need to make an informed decision based on the pros and cons and your own personal finances. If you’re still struggling to find the perfect strategy, contact a credit counselor and they will guide you through. 

It’s important to remember that there is always a solution, a way to escape debt and to usher in a brighter financial future, one where you don’t stress every day, struggle to fall asleep every night, and worry about every single expenditure. Millions of Americans die with substantial debts and for many, those debts are a direct cause of their death, but thanks to the industry’s improving regulations and increasing opportunities, it’s an issue that many are escaping from.