How to Pay Down High-Interest Debt

When you’ve decided you want to pay down high-interest debt, give yourself a high-five, a cookie and an ice cream sundae. And a beer.

That’s an admirable goal. But now that you’ve decided you want to erase your high-interest debt, how do you approach it? Let’s talk about some techniques here.

Why You Want to Pay Down High-Interest Debt 

First, why pay down high-interest debt? You don’t have to look far to find a few reasons why it’s a good idea to pay down high-interest debt. (In this section, we’ll dive into all types of high-interest debt but focus first and foremost on credit card debt — one of the most vicious types of debt.)

Reason 1: No investment strategy pays off as well — with less risk.

The average credit card interest rate is 14.65%, according to the Federal Reserve and can go up to 18% or more. That’s a hefty chunk of change! If you don’t pay off your balance in full each month, it’s easy to get into a vicious cycle you can’t climb out of. 

Sticking to paying off your cards in full is one of the best ways to avoid credit card debt. Even if you learned that lesson too late, know that you’ve made an excellent decision to focus on culling your debt when you have an 18% interest rate on your credit card. No investment will give you those kinds of returns! Some experts suggest eliminating all credit card debt before you invest. 

Reason 2: It’s dangerous. No, really.

Credit card debt sneaks up on you. First, a credit card company tempts you with a low introductory APR. But that introductory APR expires. Suddenly, you’re in a mess — a steaming pile of debt — and you might not even realize how you got there.

Making only the minimum payment on your credit cards means that it could take you decades to  pay off your debt, along with potentially thousands of dollars in interest.

Check out this example from Experian: Let’s say your credit card has a 21 percent interest rate and $4,000 balance. Let’s say you make only the minimum payment of one percent plus the interest on that one percent each month will keep you in debt for 257 months. You spend $6,374.64 in interest, bringing the total cost you’ll pay to more than $10,000. And that’s not including any other debt you rack up in the process.

Reason 3: You can hurt your future. 

When you use credit, you damage your ability to use that money or credit in the future. Let’s say you go on a $4,000 shopping spree, charge the items on your credit card, then never wear any of the clothing items or use the other things you purchased. What a waste! In 257 months, it could cost you more than $10,000 for something you don’t even use. Don’t ruin your future tomorrow with a few swipes of plastic. 

Reason 4: You can become fragile in a crisis.

What happens when you’ve maxed your credit cards out or used other high-interest loans and you suddenly experience a serious injury, an illness, a natural disaster or an economic crisis (or a rampaging virus?) These things happen, and when they do, you leave yourself far more vulnerable than you would if you didn’t have high-interest debt.

Reason 5: You feel a massive weight lift when you pay off high-interest debt. 

Paying off debt sure triggers emotions. When you pay off your debt, you just might never want to experience debt ever again. 

You might even realize that life isn’t about accumulating “stuff” — it’s about spending time with your loved ones. Maybe true financial freedom is freeing up your time, not shooting for the freedom to buy whatever you want.

How to Pay Down High-Interest Debt 

Convinced you can do it? Great! Check out the steps to paying down high-interest debt.

Step 1: Make the minimum payment on all of your accounts. 

Whaaa? We just talked about the evils of paying just the minimum on your high-interest debt balances. 

True. The thing is, you still have to commit to paying at least the minimum on all debt, particularly when you’re tackling a different type of debt or one specific credit card. 

Step 2: Attack the smallest debt with a vengeance. 

Once that debt is gone, take that payment (and any extra money you can squeeze out of your budget) and apply it to the second-smallest debt. Again, keep making the minimum payments on the rest of your credit cards or other high-interest debt.

Step 3: Apply the smallest debt’s payment to the next-smallest debt.

The money you ponied up toward the smallest debt payment goes toward the next-smallest debt. The more you pay off, the more money you have to pile onto the next debt. This is called the debt snowball method, and it’s a super effective way to pay off debt because you score easy wins with your smallest debts first.

Step 4: Come up with ways to put more money toward your debts.

How can you get creative and put more money toward your debts? While you might find this hard to do, paying off debt means you might need to divert money from a side hustle, overtime work at your current job or find another part-time job. 

Any extra income you have should go toward your credit card debt.

Will it take willpower?

Sure?

Is it worth it?

Absolutely!

Step 5: Consider other debt-reduction techniques. 

The snowball method might not trip your trigger. In that case, you can tap into the avalanche or the blizzard method instead. 

  • Debt avalanche method: You pay off your balances with the highest interest rates first when you use this method. The goal is to erase your debt as quickly and efficiently as possible. You pay off the highest APR debt first. 

For example, if you have three credit cards — one that’s 16%, one that’s 18% and a student loan worth 6.5%, you’d focus on the 18% interest rate credit card and make the minimum payments on the others. In other words, you’d pay the minimum plus any extra money you can afford. After you finish paying off the highest interest-rate debt, pay toward the next highest-interest rate debt using the same amount of money you were paying (or more). 

Why this approach? You might save hundreds or even thousands on interest charges because it’s the highest-interest debt. You might not want the quick wins of the lowest balance debt (like in the snowball method) and prefer to save money on interest. 

  • Debt blizzard method: You combine the snowball method and the avalanche method to make the debt blizzard method. You first get a quick win with the debt snowball method, then attack the rest of your debt. In other words, you get a quick win (and win some major motivation!) and pay off the rest of your debts in order of highest to lowest interest rate — the same exact way you take care of your debt using the avalanche method.

Considerations Before You Get Started

Before you take the plunge and pay down your debt, take a few things into account first.

Consideration 1: Everyone in your family should get on board.

Not only does it take lots of money to pay off high-interest debt, it takes stamina and support — lots of support. You want to make sure every single person in your family rallies around you as your cheerleading section — yes, even the kids!

Tell your whole family your goals, make a table or giant thermometer with your goal written at the top, and talk to everyone in depth about how they can make it happen. For example:

  • Everyone might need to give up Netflix or the gym membership for a while.
  • Kids might have to make do with fewer clothes and toys.
  • Groceries might have to go on a tight budget.

Can you think of other ways you can get your family to save money? Don’t forget to celebrate together as soon as you make progress! 

Consideration 2: You might need professional help. 

Realize before you get started that you might need professional help in the form of a credit counseling agency. A credit counselor will work with you to help fix your financial situation. They may offer tools and resources to help you gain control over your money.

Your best bet is to find a credit counseling agency that offers in-person services. Ask your bank or financial advisor for a recommendation.

Don’t forget to contact the attorney general’s office in your state or reach out to your local consumer protection agency to make sure you’re seeking legitimate assistance! (Unfortunately, you can find lots of scammers out there!)

Pay Down High-Interest Debt Now

Sometimes it takes more than just major willpower to pay off high-interest debt. You might need to spend time with a budget, talk to your family members till you’re blue in the face and more. 

Your college savings doesn’t have to take a hit just because you’re trying to get out of debt. Remember that you don’t have to stop contributing to UNest — you can reduce your contribution to just $25 per month! (That’s less than the cost of six lattes in a month.) 

Melissa Brock is the founder of College Money Tips and Money editor at Benzinga. She loves helping families navigate their finances and the college search process. Check out her essential timeline and checklist for the college search!