Which Debt Repayment Strategy Is Right for You

People take on debt for many reasons, paying for a house or dealing with one of life’s emergencies. Regardless of your circumstances, being in debt can be hard to get out of especially when you factor in interest costs. But you are not alone! Do you have a favorite debt repayment strategy?

According to Reuter.com, total household debt grew by $1 trillion last year, marking the largest increase in overall debt since 2007, according to the New York Fed’s quarterly report on household debt and credit. The total debt balance is now $1.4 trillion higher than it was at the end of 2019.

When carrying multiple debts at one time, it can be difficult to figure out where to focus your repayment efforts first. To find your best debt-repayment strategy, consider your preference for saving money on interest and the amount you can pay each month.

Debt Repayment Strategies

Debt Snowball

The snowball method allows you to pay your debts off from the smallest to the largest amount due. With this technique you can pay off small debts quickly, making more progress toward catching up with accounts. Pay off one account, rollover that monthly payment to the next account while continuing minimum payments on your other debts.

Here’s how it works:

  • List your debts from smallest to largest regardless of interest rate.
  • Make minimum payments on all your debts except the smallest.
  • Pay as much as possible on your smallest debt.
  • Repeat until each debt is paid in full.

Debt Avalanche

The debt avalanche method is a strategy for paying down debt. It involves concentrating on paying off your highest-interest debt first, followed by the debt with the next highest interest rate and so on. This method may help you dig out from a debt avalanche and reduce hefty interest charges.

Here’s how it works:

  • Make a list of all your debts.
  • Rank the debts from the one with the highest interest rate to the lowest interest rate.
  • Come up with a budget. A budget will help you to determine how much money you can allot to debt on a monthly basis.
  • Once you’ve eliminated your highest-interest debt, shift to the debt with the next highest interest rate. Keep up this approach until all of your debts are repaid.

RELATED: How One Woman is Paying Down $9,000+ of Debt

Debt Consolidation

Consolidating your debts allows you to combine multiple debts into a single balance so you can pay your total debts off with one payment. If you mainly have credit card debt or balances that can be paid off with a credit card debt consolidation would work for you.

Type of Debt Consolidation:

  • Home equity loans – Homeowners can take out a home equity loan (HEL), which can be a second mortgage or a refinance of a first mortgage using the available equity in their home to pay off debt.
  • Unsecured personal loans- An unsecured personal loan from a bank or credit card does not have collateral (hence it is “unsecured”), so its interest rates tend to be higher.
  • Balance transfer credit cards: Balance transfer credit cards move debt to a single credit card often offering an enticing introductory APR.

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Debt Management Plan

If you’re having a hard time paying your bills, repaying your debts under a debt management plan (DMP) can give you a break on interest and the monthly payment amount. A DMP is a payment agreement with your credit card issuers, typically of three to five years, and is arranged by a consumer credit counseling agency. You make a single payment each month to a credit counseling agency, which distributes it among your creditors. Credit counselors and credit card companies have longstanding agreements in place to help debt management clients.

RELATED: Strategies To Help You Become Debt-Free

Debt Settlement

Debt settlement means a creditor has agreed to accept less than the amount you owe as full payment. It also means collectors can not continue to hound you for the money and you don’t have to worry that you could get sued over the debt.

debt settlement can be risky, consider these factors:

  • Debt settlement can destroy your credit.
  • Reaching a settlement can take a long time to accomplish — often between two to four years.
  • It can be costly.


Prioritizing your debt repayment strategy in relation to one another is important, you also need to look at them alongside other expenses. I recommend that before you focus on becoming debt-free, ensure that your basic living expenses are covered and you aren’t breaking your monthly budget while you work on repayment.

If you’re feeling overwhelmed by debt, here are some things not to do:

  • Don’t withdraw money from your retirement savings in order to repay unsecured debt. This is financial suicide.
  • Think twice about borrowing money from workplace retirement accounts as well.
  • Don’t make decisions based on which collectors are pressuring you the most; that may lead to actions that aren’t in your best interest. Instead, take time to research your options and choose the best one for your situation.