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The Best Ways to Pay Off Personal Debt

Updated on June 20, 2014

In science and mathematics there is a logic to everything. No matter what your culture or background is 1+1 must add up to 2, this is the same when dealing with money. Many people tend to forget this simple formula which is what lands them into debt trouble and even bankruptcy.

Each month if you have a certain amount of funds to pay off a percentage of your credit card, there is always the mathematical right way to do this. One can call this method the "Debt Avalanche". This method will allow you to pay off your debts faster with less interest. A very simple formula which most people tend to overlook most times.

Prioritize your debts from high to low interest rate

Credit cards will probably be at the higher interest rate end for most people. Some interest rates are 10% to 20% or in some case even higher. A lot of people obtain credit cards from stores, these will typically have a high interest rate so these should be at the top of the priority list.

A lot of people forget or over look limited promotional offers promised by credit card issuers, pay close attention to the deadlines as you can save by paying lower interest in the correct periods. Don't disregard those emails as irritating junk or spam.

Another thing to also note is that if your credit improves it will be very unlikely for them to lower your rate, on the other hand many lender will give people notice to say that their rate will go up. Many people tend to ignore or miss these very important notices.

Student loans will probably be at the bottom of the list due to the low interest rate however it is important that they are considered in the overall calculation.

The list should be ordered from highest to lowest interest rates, your account balance is not mentioned since that is irrelevant for this method and will very from person to person.

Next in line for most people is the home equity load and mortgage. Make sure your priority list has every single details of loan repayment. The debt avalanche method is not effective unless it cover all areas of your debts.

Pay off the minimum each month

The best way to do this is to make columns in a spread sheet such as MS Excel. An extra column should have the header "Minimum" payment and this is the minimum amount to pay off every month. All items should have this column except the item at the top which has the highest interest rate.

Another column should list the payment deadline which should have a fixed date. some people are able to actually reduce the total amount of interest payed by making payments well in advance of the due date. Better to check with your lender for more information.

Use all available cash to pay off the high interest debt

This one may seem difficult for most people, but in the long run it is simple math and will save you the most interest since this one is at the top of the list. Basically any spare money left over from your normal expenses should be put towards this loan, never simply pay the minimum amount, this is what will have you digging a deeper hole for yourself.

Stick to the same pattern every month

with this method all bases are covered by ensuring that your lenders receive at least the minimum amount. The main thing you are targeting though is your top of the list high interest debt which needs to be taken care of the fastest.

Once a debt has been cleared then simply remove it from the list and re-prioritize again.

Some may disagree and may not be committed to this method however the fact remains that mathematically this will help you to pay off all your debts in not only a shorter time but with less interest also.

One reason why a lot of people fall into debt is because they have difficultly understanding these differences between rational and emotional thinking. This Debt Avalanche methods helps people to differential these two ways of thinking. Financial decisions such as Forex trading go wrong with about 90% of people mainly due to emotional thinking after losing a trade and trying to get revenge.

This method has an "Early Success" feeling for people who begin which is what motivates many people to continue until the goal has been reached. Even when the goal has been reached, the Debt Avalanche helps people to stop debts from ever growing again.

How do you handle you credit card payments

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    • KoraleeP profile image

      Koralee Phillips 

      5 years ago from Penticton British Columbia Canada

      Great tips on paying off credit cards. I like the idea of prioritizing and paying one off. I also agree with Victoria that once a credit card is paid off, it should not be used again unless its an emergency or it turns into a vicious cycle.

    • Victoria Lynn profile image

      Victoria Lynn 

      5 years ago from Arkansas, USA

      Your advice is so right. And once out of debt, people shouldn't go back into it. There is no need to run up credit cards except for emergencies. People get so used to purchasing what they want on credit. It's hard to get out of that mindset. Great hub!

    • Hezekiah profile imageAUTHOR


      6 years ago from Japan

      Thanks Jennifer. With the high interest loans, the minimum should already be calculated from your income and expenses anyway so for lower income families even though it may hurt a little, it may be possible to add that little extra to the payments if you cut down an other costs. However it is more comfortable for most people to pay the minimums for everything.

    • profile image

      Jennifer Angel 

      6 years ago

      Interesting information, but as you say all incomes and expenses are different from person to person. If this scenario belongs to a person who has an income greater than $400 every two weeks, then this indeed will work. Those of us not on a higher income will have to make concessions where the minimum is all we are able to make each month.


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