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How to Pay Off Debt

NEW! Listen to this article. (Read by George Kamel)


If you owe money on student loans, car loans and credit card bills, you’re not alone. The latest numbers from the Federal Reserve show that the total national household debt stands at a whopping $14.27 trillion.1 That’s trillion with a “T.” Yeah, it’s safe to say that worrying about debt is a national epidemic at this point.

Even though we all know debt is a huge problem, everyone still thinks it’s a normal part of life. And when you start talking about paying off debt, they look at you like you’re nuts. The hard truth is, debt robs you of your money now and steals from your future. Plus, you’re stuck paying for stuff from the past! Like those on-a-whim shopping sprees from your college days, old Rex the dog’s vet bill (he’s not even your pet anymore), and groceries from all those times there was more month than money. Not to mention you’re saddled with paying insane amounts of interest too.

If it sounds like a mess, that’s because it is. But stick with us here, we’ll show you how to pay off debt and stay away for good.

What Is Debt?

Anytime you owe money to someone else—that’s debt. Yep, we’re talking about credit cards (even if you pay them off every month!), student loans, the mortgage, payday loans, personal loans and even car loans.

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Non-mortgage debt includes:

  • student loans
  • car loans
  • credit cards
  • medical debt
  • home equity loans
  • payday loans
  • personal loans
  • IRS and government debt

Monthly bills, like electricity, water and utilities, aren’t debt—those are just your normal expenses. The same goes for things like insurance, taxes, groceries and childcare costs. But how you pay for these routine monthly expenses can turn into debt. If you use credit cards to pay for your electric bill, your groceries or your car registration, you might be well on your way to racking up a mountain of debt.

And what about your house? Yes, your mortgage is technically a type of debt, but it’s the only one Dave Ramsey won’t give you a hard time about. That is, as long as your payments aren’t more than 25% of your monthly take-home pay and you stick to a 15-year, fixed-rate mortgage. But that’s a different rant for a different day.

Remember, if you owe a balance and make payments to someone, you’re in debt. But you don’t want to stay there! Now that we’ve called out the different types of debt, it’s time you get cracking on paying off debt. You need to give debt the boot as quickly and as intensely as you possibly can. Get angry at it and then tackle it with all you’ve got! But first things first—you have to know how much you owe. And even though that can be a scary number to see in black and white, you’ve got to do it.

How Much Debt Do You Have?

Adding up the grand total of your debt isn’t going to be pretty or fun. Still, you’ve got to rip the Band-Aid off and know what that number is so you can attack it. So, take a deep breath and open up that envelope or account page. Look at the number, make peace with it, and then tell yourself, I can do this. You can get rid of that nasty debt once and for all.

Now that you’ve drummed up all the courage you had and saw some (maybe unnerving) numbers, it’s time for some good news. Let’s figure out how soon you can pay it all off! Use this super easy debt snowball calculator tool to add up all your debt and find out how fast you can get it out of your life. No more hiding your head in the sand—it’s time to face the truth so you can do something about it!

Once you get your results, take a deep breath again (don’t freak out!) and stick with us here. We’ll show you the proven plan that will not only help you pay off debt but kick debt to the curb for good

Debt Reduction Strategies That Don’t Work

Let’s get straight to the point on this one—paying off debt is never easy. We’re fully aware of the buzz surrounding all the “quick” ways to clean up your debt, but if it sounds too good to be true, then it probably is. Let’s look at some of the options out there and why you should steer clear:

Debt Consolidation

This is basically a loan that combines all your debts into one single payment. It sounds like a good idea at first, until you find out that the lifespan of your loans increases, meaning that now you’ll stay in debt even longer. And the low interest rate that looks so appealing right now—guess what? It usually goes up over time too. Quick recap: Stretching out the time you’re paying off debt, plus interest going up, equals a bad deal. Don’t do it.

Debt Settlement

Debt settlement companies are the seedy underbelly of the financial world. Run from this option. Companies will charge you a fee and then promise to negotiate with your creditors to reduce what you owe. Usually, they just take your money and leave you responsible for your debt. Uh, we’ll pass.

401(k) Loans

Nope. Not good. Never borrow from your 401(k) to pay off your debt! You could get hit with penalties, fees and taxes on your withdrawal. By the time you add all that up, it’s not worth it. Plus, you want to keep that money invested toward your retirement—not pay for the mistakes of the past.

Home Equity Line of Credit (HELOC)

It’s never a good idea to borrow money against your home. You risk losing your house if you can’t pay back the loan on time. No thanks! It’s not worth a risk like that. Forget it, and just don’t do it.

At the end of the day, these types of debt reduction options are dicey at best, and they’re only treating the symptoms of your money problems anyway. They’ll never help you address the root issue of why you landed here in the first place. You don’t need to consolidate, settle or borrow to deal with your debt. You need to change how you handle your money—plain and simple. Your money will never change until you do!

How to Pay Off Debt (the Smart Way)

1. Never use debt again.

No, seriously. Never again. Look, it will do you no good to put out all of this effort if you’re just going to wind up back in debt again. If this is going to work, you have to commit to the mindset that debt is dumb (because it is).

2. Live on a budget.

You can dodge it all you want, but the simple truth is, you won’t ever get ahead if you’re spending more than you’re making each month. If you want to start winning with money, you have to make a plan and tell every single dollar where you want it to go before it’s spent. Our free budgeting app, EveryDollar, makes creating your first budget super simple.

Your budget might be a little wonky at first, but don’t give up! It takes people about three months to get into a regular rhythm with a budget. But we promise, it’s worth the effort. The budget is going to help keep you on track as you work toward paying off debt. And despite what you might have heard, having a budget doesn’t put an end to all your fun—the budget actually gives you freedom to spend. And it gives you peace of mind knowing exactly where your hard-earned money is going.

3. Use the debt snowball method.

Now that you’ve got your budget set, it’s time to start paying off debt! And the best way to pay off your debt is with the debt snowball method. This is the way to gain major momentum as you pay off your debts in order from smallest to largest.

We know there are a lot of people out there who will tell you to pay off your largest debt or the one with the highest interest rate first. Sure, the math makes sense, but paying off debt is more than just the numbers. If you’re going to stick with it, you need to see quick wins and feel like you’re making progress—that’s where the debt snowball comes in.


Let’s look at how the debt snowball works:

  • List your nonmortgage debts from the smallest to largest balance. And remember, don’t pay attention to the interest rates.
  • Make minimum payments on all debts—except for that little guy (we’re attacking him). Toss whatever extra money you can find at the smallest debt. Whether your smallest debt is $100 or $5,000, get serious about clearing that debt as fast as you can!
  • Now take the money you were paying on that small debt and add it to what you were paying on the next highest debt. So, if you were chucking $150 at your smallest debt, you now have that money freed up to go toward the next debt on your list. You can add that $150 to the $88 minimum payment you were already doing. Now you’ve got $238 to put toward that next debt. See? It’s a debt snowball!
  • All right, now keep doing this same method until you cross off the very last (and largest) debt on your list. This could take you 18 months, or it might take you 6 years. The point is—you’re doing it! No matter how long it takes, you’ve made the commitment to become debt-free, and you’re going to see it through. We believe in you!

4. Get on the proven plan for your money.

It’s time to crush your debt, take control of your money and start living for your future instead of your past. You can do this! Whether you’re just starting to pay off your debt or you’re a few years in (and ready to kick it into high gear), check out the free trial of Ramsey+.

The Ramsey+ membership will help you knock out your debt even faster with tools like Financial Peace University, the new BabySteps app and the premium version of EveryDollar, plus a ton of other exclusive content. And get this—the average family who finishes the lessons in Ramsey+ pays off $5,300 in debt and saves $2,700 within the first 90 days alone! Nearly 6 million people have used this plan to budget, save money, and get out of debt once and for all. Now it’s your turn!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.