How To Pay Off Debt

In 2012, 46% of Americans carried over a credit card balance from month to month. For those households with credit card debt, the average balance of that debt was an astonishing $15,800.  Why do people have so much debt and why can they not pay off their balances?

You generally fall into two categories if you have debt, whether it’s credit card debt or any other debt for that matter.  There are those who simply don’t care about the amount they spend and have no concern for the fact that their monthly expenses are greater than the amount they bring in.  On the other hand, some people create budgets and conscientiously try to pay off debt each month.

If you’re in the first category, I can’t help you.  Someday, you will wake up and come to the realization that you cannot continue in that manner, but nothing people say will be the catalyst for change.  However, if you make the habit of paying more than your minimum payments each month and you’d like to be debt free, today’s infographic may help.

how to get out of debt

Most of us know that making the minimum monthly payment is a fools’ way to pay off debt.  It will take years and years of $50 payments to pay off your principal and all of the interest.  You could and should pay more than the minimum amount due, but which loan to concentrate on first is not always a simple question to answer.

Two popular methods today for prioritizing debt payments are Dave Ramsey’s ‘snowball’ effect and Suze Orman’s high-interest method.  A third and less talked about strategy is to combine the two. All three methods will produce a debt free outcome much faster than paying the measly minimum payment.

Both the Ramsey method and the Orman method will have a debt of $7,200 paid off within 14 months, but the Ramsey method will have you paying slightly more in interest ($757 vs $736).  The only time this method is preferred is when you need a little motivation to continue paying more than the minimum due each month.  Sometimes it’s also easier and simplifies things to make payments to fewer loans.

If you’re not sure which method is right for you, choose a combination of both.

Finally, people pay off large amounts of debt all the time.  For example Brock over at is in the process of eliminating $10,000 worth of debt, and James at was able to pay off $40,000 worth of debt.  So, it can be done.

Need more help getting out of debt? Check out these articles.

Can Debt Settlement Be Your Way Out of Debt?
How to Prioritize Debt Payments
How to Manage Debt in Your Marriage

Readers:  Who has used one of these three methods and benefited from the results? Who was making minimum payments but is now motivated to develop a plan to become debt free using one of these payoff methods?


  1. Yeah, I’m one of the 58% of Americans who don’t carry credit card debt month to month – never have, never will. I more or less use my credit card as cash, but cash that gives me cash back on my purchases. I’m not surprised the Suze method worked better – to me, it makes more sense than Ramsey’s method, although I guess I was shocked at how negligible the differences were.

    • I use my credit card in the same way. If you’re receiving cash rewards, there’s no reason not to.

      Orman’s methods definitely appears to be the better choice if the goal is to pay less in interest, but I too was surprised at the minor difference between the two. If I lowered the monthly payments and increased the overall debt, the difference would become more apparent.

  2. I tend to like a modified Dave Ramsey plan for “most people” – just because I believe there’s a lot to be said about the quick wins and positive reinforcement along with the “personal finance is about altering behavior and not just the math” theory. I think the comparisons often don’t take this into account – that the people doing the DR plan might work harder and pile more money into the plan than the SO plan – and that can’t be predicted or shown on a calculation, ya know?

    I disagree with DR’s “how to apply large amount of found money” part of the snowball though. I think a large amount (like a few thousand or more) should be applied to either the highest debt or largest debt the lump sum will pay off in its entirety instead of just “up the snowball” because it leaves the lower-hanging fruit that make his plan motivating.

    • People that aren’t going to or don’t know how to run a quick amortization table would benefit from Ramsey’s method. As you said, the quick wins are great motivational tools.

      I agree that people’s behavior must also be altered. It doesn’t make sense to pay down your debt using any of these methods while simultaneously outspending you earnings and racking up more debt.

      I think the reason that he tells people to apply the lump sums to the highest rate is to save money on interest charges. The savings become too hard to ignore at that point. The larger the monthly payment, the more money you save on interest charges. Therefore, if an unexpected lump sum is applied to the highest interest rate, a much more significant amount is saved.

  3. I only have two debts – my student loans and car payments (I do realize that two debts is more than I should have – I should have 0 – but student loans were necessary). I am not accruing any interest at all on my student loan debt, and so I’m paying off my car loan.

    • Your scenario is a perfect example of when Dave Ramsey’s method could be the wrong choice.

      In your case Daisy, it definitely makes more sense to pay down the loan that is charging you interest. Don’t forget that when you start paying on your student loans, adjust the interest to account for the tax right off (if you’re eligible of course).

  4. I am following my own method 🙂 It’s a little different for student loans, because lowering principal won’t lower your monthly payments. We are targeting the loans that are in payoff range ($12k), so we can get rid of the monthly payments, even though they’re at a lower interest rate than the big loans (2 at $74k!).

  5. I like ”Dave Ramsey plan” his method are realistic and actionable. A combination of the all methods would be recommended.

  6. I too am a Dave Ramsey fan. I found out about him in 2004 and immediately cut up all credit cards and starting working on Baby Step 1 working toward a $1,000 emergency fund. What I like most is the idea of a $0 dollar budget where you give every dollar a name so that it has somewhere to go, otherwise it just disappears.

    Great Article, enjoyed reading it …. Thanks!
    Rodge @

  7. Nice post. Both methods are excellent for dealing with personal debt. Personally, I prefer the Dave Ramsey method.

  8. The simple way to pay off debt is to think it as a loan and then repay it.

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