How to Pay Off Debt: A Step-by-Step Plan to Get Debt-Free Faster

This comprehensive guide walks you through how to pay off debt using proven strategies like the snowball and avalanche methods, budgeting, and smart repayment tactics. Learn how to build a personalized payoff plan, reduce interest, and stay motivated on your path to becoming debt-free.

Marlese Lessing

Author

Rachel Lawrence

Reviewer

No matter what your background is, your financial situation, or how much money you make, you have the power to pay off your debt in a timely manner. While debt can happen to anyone, with some planning, smart strategy, and a few handy tricks, here’s how you can pay off debt the smart way with digital planning tools like Monarch.

Your Debt Repayment Action Plan

Starting off on your debt repayment journey can happen as soon as today. With some forethought and planning, you can be well on your way to getting your debt under control with a payment plan, a timeline, and an end in sight as you pay off your balance. Here are the steps in a nutshell.

  1. Figure out your debt balances
  2. Choose a strategy that works
  3. Build your budget around debt payoff
  4. Manage your payoff plan
  5. Put extra funds toward your payoffs
  6. Celebrate your wins and milestones

Know Exactly What You Owe

According to the Federal Reserve, at the end of 2025, Americans owed a collective $18.8 trillion in debt, or $105,056 on average. Getting a handle on your balances is the first step to figuring out what your debt action plan is, since it will tell you what your monthly payments will look like and what you need to prioritize.

Your debt inventory should include debts such as:

  • Credit card debt
  • Retail credit
  • Medical debt
  • Student debt
  • Personal debt
  • Lines of credit
  • Auto debt
  • Buy Now Pay Later (BNPL) balances
  • Mortgages

When building a debt inventory, it’s also important to list important information such as:

  • The name of the creditor/collector
  • The age of the debt
  • The APR (also known as the interest rate)
  • The current balance
  • The minimum monthly payment
  • The debt term
  • Number of minimum payments remaining
  • Payment due dates

This information will come in handy when it’s time to choose a debt repayment strategy.

Monarch Pro Tip: Staying on top of multiple balances and payments doesn’t have to be complicated. With Monarch’s tracking feature, you can link your balance accounts into the Monarch platform so you can see exactly what your balance, interest rates, and monthly payments are.

Choose Your Debt Payoff Strategy

Instead of simply making the minimum payments and hoping for the best, using a debt repayment strategy can help you pay off your balances more quickly and save you on interest in the long run. Here are some of the most popular methods to consider.

Debt Snowball Method

Best for: Quick wins as you pay off your debt balances

The debt snowball method has you ordering your debts from the smallest balance to the largest, and focus-firing any extra payments toward the debt with the smallest balance first while making minimum payments on all other debts. Once the first balance is paid off, you roll the payments you’ve been making into the next-smallest balance, “snowballing” your payments until all the debt is paid off.

Debt Avalanche Method

Best for: Maximum efficiency and speed in paying off debt

The debt avalanche method works similarly to the debt snowball method, where you roll payments from each paid-off balance into the next one. The key difference is that you order your debts by interest rate, paying off the highest-interest debts first.

In particular, Monarch recommends tackling debts in the following order of interest rates and aggressiveness with your payments:

  • Level 0 (Highest priority): Debts at 25% interest or higher
  • Level 1 (Middle priority): Debts at 10% to 25% interest, which you should try to refinance if possible
  • Level 2 (Lowest priority): Debts at 10% interest or lower

Debt Consolidation Loans

Best for: Simplifying payments and possibly saving on interest

Consolidation loans allow you to bundle payments by creating a new, singular loan, the money from which is used to pay off your other balances and creating a singular debt with one balance and interest rate. This can be helpful in not only simplifying your payments into one, and can even save you on interest if you manage to get a competitive rate compared to your other debts.

A quick word of warning: Do not use a debt consolidation loan to refinance credit card debt if you are still actively using the cards, since this can often lead to increased debt and endless debt paydown cycles.

Balance Transfer Credit Cards

Best for: Saving on interest with credit card debt

If you have a good credit score, you may qualify for a balance transfer card. Balance transfer cards allow you to transfer the balance of one or more credit cards to a new card, which comes with a low or 0% introductory APR.

Debt Management Plans Through Nonprofit Credit Counseling

Best for: Getting a handle on debt that feels overwhelming

If you have a large amount of debt and you don’t know where to begin on paying it down, you might want to consider talking to a certified credit counselor. Credit counselors can help you manage your debt by creating a debt management plan (DMP), where you pay a single amount each month to the credit counseling organization, and they use the payment to pay off your balances.

The Emergency Fund Question

If you don’t have an emergency fund in place, or if yours is seriously depleted, then you may be wondering if you should prioritize paying down your debt or building your emergency fund.

While paying down debt is important, your emergency fund still matters, especially in the long run if you’ll be paying off debt over a course of several months or years. Not only can your emergency fund help protect you when you face an unexpected expense, it can help support your debt repayments if you experience a loss of income.

As such, Monarch recommends saving either $1,000 or one month’s worth of take home pay (whichever is greater) before focusing on paying down debt.

Stay on Track and Stay Flexible with Your Payoff Plan

Once you have your payment plan in place, stick to it. Manage your budget and prioritize your payments accordingly. Stay motivated by keeping your end goal in mind, and by tracking and celebrating your milestones.

Put Extra Funds Toward Your Repayments

A little can go a long way when it comes to paying down debt. Did you know that contributing an extra $20 to the $150 minimum payment on a $5,000 credit card balance with 26.5% APR can save you nearly $1,000 and a year’s worth of repayments?

Celebrate Your Wins

With every payment you make, and with each debt you pay off, take a moment to pat yourself on the back for taking another step in your debt repayment journey. Paying off debt takes dedication and discipline, and with every step you are getting closer to achieving the financial freedom that comes with being debt-free.

Debt Repayment Plans for Different Debt Types and Circumstances

Choosing how you want to build out your debt repayment plan will depend not only on the type of debt you’re in, but also your income and your individual life circumstances. Here are a few tips for different types of debt and repayment scenarios you may want to consider.

Student Loans

Student loans are one of the most common types of debt, and one of the most pernicious. Since they aren’t dischargeable in bankruptcy, you’ll want to focus both on repayments and on possible forgiveness plans you may qualify for.

Medical Debt

Medical debt can happen to anyone, especially if a medical emergency quickly outstrips your emergency fund or isn’t covered by insurance.

If You're Paying Off Debt on a Low Income

Feeling squeezed for cash with your loan repayments can be stressful. If you’re struggling to make loan payments with your current income, you have a few options.

If You're Tackling Debt as a Couple

Managing debt with a partner or a spouse means having a unified front for managing your finances and payments. While you don’t necessarily have to be responsible for your partner’s payments if you don’t want to, it’s still a good idea to understand where your responsibilities lie and how you want to handle it as a couple.

The Psychology of Staying Motivated Through Debt Payoff

Debt can feel overwhelming. When your balances keep creeping up from interest, when collectors call, and when your payments just don’t seem like they’re making a dent, it’s not uncommon to feel like giving up.

What to Do When You Slip Up

Getting thrown off course in your debt repayment journey can happen for a variety of reasons, whether it’s losing income, having to take on more debt because of an emergency, or simply missing a payment. Here’s what to do when that happens:

How Paying Off Debt Affects Your Credit Score

As you pay off your debt balances, you can expect to see both positive and negative changes in your credit score.

The Tax Implications Nobody Talks About

Paying down debt comes with certain tax implications, which can impact how much you can deduct and what you pay when tax season comes around.

Should I Use a Debt Relief Program?

You may have heard about debt forgiveness programs, which promise to help relieve some of your debt through a process called settlement.

What to Know About Bankruptcy

Something else you may have heard of when it comes to debt repayment is bankruptcy. Bankruptcy is a process in which some or all of your debt is discharged, in exchange for some or all of your assets (such as real estate, vehicles, and personal savings or investments) being liquidated (sold off) to pay off part of the balance, or when you reorganize your debts and create a payoff plan.

Your Path to Becoming Debt-Free Starts Today

Paying off debt is a bit like a marathon. You’re better off making steady progress and strategic moves instead of scrambling to pay off your debt all at once if you don’t have the funds to do so.
Monarch can help you every step of the way.