Eight Steps to Organize and Pay Off Your Debt

The average total consumer household debt last year was $105,056—a 13% increase over the past five years, according to the most recent data. When it comes to researching strategies and tips for paying off your balances, it’s easy to get lost down a rabbit hole. And that rabbit hole can distract you from the real work of getting organized and tackling your debt.

Taking the first steps toward a clear plan and system in place—even just reading this article—can help you feel more in control and start to make some progress toward being debt-free. If you're worried and feeling overwhelmed by debt, here are initial steps to take so you can get organized and make some real progress.

Know what you owe

Before you can tackle your debt, you need a complete picture of what you're facing. Here are the first actionable steps you can take:

• Gather all statements for every debt you have (credit cards, student loans, medical bills, personal loans).

• Create a master list with the creditor name, balance, interest rate, minimum payment, and due date for each debt.

• Check your credit reports to ensure you haven't missed any debts.

• Keep this information in one accessible place—a spreadsheet, notebook, or budgeting app.

List out your interest rates

In order to prioritize your debts, list them out by interest rates. If you can’t rattle off yours, it’s time to log into your accounts or check your latest statement to pinpoint your interest rate for each and every balance you carry. Doing this now can help you strategize to get that debt paid off faster.

Choose a payoff method

Once you know your interest rates, you can strategize your payoff plan with either the snowball method or the avalanche method.

The avalanche method prioritizes high-interest debt first, helping you pay less interest in the long run by knocking out debts with higher interest rates as soon as possible. The main benefit of the debt avalanche is that it saves you the most money in the long run by targeting the most expensive debt first. This can be especially helpful if you have one or two debts with significantly higher interest rates than the others. Knocking those out first can make a big dent in the total amount you owe.

The snowball method, on the other hand, focuses on paying off your debts in order of smallest balance to largest. The idea is that getting "wins" by paying off smaller debts quickly can provide much-needed motivation to keep going. The main benefit of the debt snowball is the psychological boost you get from crossing debts off your list one by one. This can be incredibly powerful, especially if you have a lot of smaller debts that feel overwhelming. Paying them off in quick succession can give you the momentum to keep tackling the larger debts.

Never miss a payment

Even if you only make the minimum payment on your balances to start, make sure you pay each and every bill on time, every time. Missing that due date could result in both a late fee and a penalty APR, meaning you could pay up to 30% interest for a while instead of your normal interest rate. Dealing with that penalty interest rate could set your payoff plans back in a major way.

To make it easier to avoid payment disasters, set up automatic payments. You can always make additional payments when you’re able to pay more than the minimum, or adjust the amount for your monthly payments. And if your debt is in a balance transfer promotional period (more on that in the next slide), you’ll want to make sure you can pay off your entire balance during that zero-interest period.

Consolidate your debt or transfer your balance

If you’re having a hard time paying more than the minimum on your debts, consider taking steps to reduce your interest rates. There are two main ways you can do this if you don’t feel like calling every one of your creditors to haggle:

Consolidate: Debt consolidation makes sense if you can save money over the long term by securing a better interest rate, or if streamlining will be what allows you to make payments on time. And remember, consolidated debt is still debt that needs to be paid off as quickly as possible.

Transfer: Check with your credit card issuer for zero-interest balance transfer offers, which allow you to transfer in your balance from another source of debt to your current account. Zero-interest offer periods can last anywhere between nine and 18 months.

Forget about earning rewards

Rewards earnings setups and signup bonuses have a special way of getting people to spend more than they bargained for. If you’re in debt, now isn’t the time to try to optimize your credit card use to earn maximum rewards. This is especially important if you have cards that charge annual fees.

If you have some rewards cards in your wallet, convert your balance to statement credit to help put a dent in your balance.

Ask for help if you get stuck

If you’re having a hard time paying your minimum debt payments because of a financial hardship like a job loss, you can ask your creditor if it has a customer assistance program. You may be able to defer your payments for a few months while you get back on track.

You can also get a second opinion on your debt payoff plan, whether your monthly budget is in dire straits or you’re just feeling stuck. Credit counseling organizations are typically non-profit groups that provide a range of money management services and educational resources to consumers. Their counselors are certified professionals who can give you expert, unbiased guidance on how to handle your specific financial situation. All the money you pay goes directly toward your debts, but there may be costs to use such a program. There’s often a setup fee of up to $75 and an ongoing monthly fee of between $25 and $75.

Prepare for setbacks

Life happens—stay organized even when challenges arise. Know which bills could be temporarily reduced if finances get tight, and have contact information ready for creditors if you need to request hardship accommodations. Review and adjust your plan quarterly to stay realistic and on track.

Getting organized isn't a one-time event but an ongoing process that supports your financial goals. With these systems in place, you'll build momentum to pay off your debt once and for all.

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