Debt can feel like a hole you can't climb out of, especially when interest keeps adding to the balance. The Federal Reserve reports that the average interest rate on credit card accounts that were charged interest was 22.15% in the second quarter of 2026 (Federal Reserve G.19, checked October 2026). At rates like that, a plan matters.
This guide walks through paying off debt step by step, compares the two most popular methods, and covers how to avoid the debt relief scams that target people who are struggling.
A note: this is general education, not personalized financial or legal advice. Dollarberg isn't a financial advisor. If you're behind on payments or facing collections, a nonprofit credit counselor can review your situation.
Step 1: List Every Debt
Write down each debt with:
The creditor
The current balance
The interest rate (APR)
The minimum monthly payment
The due date
Include credit cards, personal loans, car loans, medical bills, student loans and buy-now-pay-later plans. Seeing the full picture is uncomfortable but essential.
Step 2: Pay Every Minimum, Every Month
Missing minimums adds late fees, can raise your rate and hurts your credit. Set up autopay for minimums so nothing slips.
Step 3: Choose Your Payoff Method
Both methods work the same way: pay minimums on everything, then put every extra dollar toward one target debt. When that debt is gone, roll its payment into the next one.
The debt snowball
Target the smallest balance first, regardless of interest rate.
Why it works: quick wins keep you motivated.
Trade-off: you may pay more interest overall.
The debt avalanche
The avalanche method targets the highest interest rate first.
Why it works: it saves the most money on interest.
Trade-off: the first payoff can take longer, which can feel discouraging.
A side-by-side example
Illustrative numbers, not a recommendation. Say you have three debts and $200 a month extra:
Debt | Balance | APR |
|---|---|---|
Store card | $600 | 26% |
Credit card | $3,500 | 22% |
Car loan | $7,000 | 8% |
Snowball pays the $600 store card first (smallest balance), then the credit card, then the car loan.
Avalanche also pays the store card first here, because it has both the smallest balance and the highest rate, then the credit card, then the car loan.
When the smallest debt also has the highest rate, both methods agree. They differ when a small balance carries a low rate, which is when the avalanche saves money and the snowball buys motivation.
Which should you choose?
Snowball | Avalanche | |
|---|---|---|
Target first | Smallest balance | Highest interest rate |
Saves most interest | No | Yes |
Quick wins | Yes | Sometimes not |
Best for | People who need motivation | People driven by the numbers |
The best method is the one you'll stick with. Some people start with a snowball win, then switch to avalanche.
Step 4: Find Extra Money for Debt
Every extra dollar speeds things up:
Build a budget that assigns money to debt each month. See budgeting for beginners.
Cut and redirect: cancel subscriptions and put the savings toward your target debt.
Use windfalls: tax refunds, bonuses and gifts.
Earn more: a side hustle can add hundreds a month. See side hustle ideas from home, online jobs that pay weekly and our plan to make an extra $1,000 a month.
Sell things you don't use. See Poshmark vs Mercari vs Depop.
Step 5: Lower Your Interest Where You Can
Ask your card issuer for a lower rate, especially if you've paid on time.
Balance transfer cards can pause interest for a promotional period, but watch transfer fees and the rate after the promo ends.
Debt consolidation loans can lower your rate if your credit qualifies; compare total cost, not just the monthly payment.
Don't run up new balances on cards you've paid off.
Step 6: Keep a Small Emergency Fund
It sounds backward, but a small cash buffer keeps a surprise bill from going back on a credit card. Build a starter fund, then attack debt hard.
How to Get Out of Debt and Save Money at the Same Time
A balanced approach many people use:
Starter emergency fund
Get any employer retirement match (free money)
Pay off high-interest debt aggressively
Grow the emergency fund
Increase saving and investing
Debt Help: Counseling vs Settlement
The FTC's guide to getting out of debt (checked October 2026) explains the main options:
Nonprofit credit counseling: a good counselor reviews your whole budget before recommending anything. Look for counselors through credit unions, universities, Cooperative Extension offices or military financial programs, and get any fees in writing.
Debt management plans: you make one monthly payment to the counseling agency, which pays your unsecured creditors. The FTC notes plans often take 48 months or more.
Debt settlement: companies try to get creditors to accept less than you owe. The FTC warns you may be told to stop paying creditors, which can bring late fees, credit damage and lawsuits, and forgiven debt may be taxable.
Red flags of debt relief scams
The FTC says a debt settlement company can't collect fees before it settles your debt. Walk away from any company that:
Charges upfront fees
Guarantees it can settle all your debts
Pressures you to sign up before reviewing your finances
Promises a "government program" to erase your debt
Report scams at ReportFraud.ftc.gov.
Staying Motivated
Track your total debt monthly on a chart.
Celebrate each paid-off account with something free.
Tell one person about your goal.
Remember why you started: lower stress, more choices, money for your goals.
Frequently Asked Questions
What is the fastest way to pay off debt?
Put every extra dollar toward one debt at a time while paying minimums on the rest. The avalanche method (highest rate first) costs the least in interest; increasing your income speeds up any method.
Is the snowball or avalanche method better?
Avalanche saves more interest; snowball gives faster wins. The better method is the one you'll stick with.
Should I save or pay off debt first?
Many people build a small emergency fund first, capture any employer retirement match, then pay off high-interest debt.
Is debt settlement a good idea?
It carries real risks: the FTC warns of fees, credit damage, possible lawsuits and taxes on forgiven debt. Talk to a nonprofit credit counselor first.
The Bottom Line
Paying off debt comes down to a clear list, a chosen method, extra money aimed at one target, and patience. Avoid companies that charge upfront fees, and consider nonprofit credit counseling if you're overwhelmed. Next, learn how to stop living paycheck to paycheck.