Getting out of debt is one of the most stressful financial processes there is. Good news: there are proven methods that work. The key is to pick one and commit.
Before starting: 3 prerequisites
- List all your debts: amount, interest rate, minimum payment, time remaining.
- Stop adding debt: put away the credit cards. There's no point paying off debt while generating more.
- Build a mini emergency fund: $1,000 minimum. Without this, the next emergency will send you back to the cards.
Method 1: Snowball (Dave Ramsey)
You pay off the smallest debt first, regardless of rate. When it's gone, you roll that payment into the next smallest, and so on.
Example:
- Card A: $500 at 28% (min $50)
- Card B: $2,000 at 24% (min $150)
- Loan: $5,000 at 18% (min $300)
You'd pay minimums on B and C, and everything extra on A. When A is gone, that $50 rolls into B's payment. When B is gone, that $200 ($50+$150) goes to C.
Pro: Quick wins. Killing a small debt in a few months keeps you wildly motivated.
Con: You pay more total interest than with the avalanche method.
Method 2: Avalanche
You pay off the debt with the highest interest rate first. Mathematically optimal.
Using the same example, you'd attack Card A first (28%), then B (24%), then the loan (18%).
Pro: Saves money on interest. Gets out of debt faster in absolute terms.
Con: If the highest-rate debt is also the biggest, you may take too long to feel progress and quit.
Which to choose?
Depends on your personality:
- Need visible motivation → Snowball
- Disciplined and want to optimize → Avalanche
- Rates are similar → Snowball (psychologically better)
- One debt has a much higher rate than the rest → Avalanche
The hybrid method
Pay avalanche-style but make an exception for the smallest debt to score a quick win and stay motivated. Most common and works very well.
Extra strategies
1. Negotiate rates
Call your bank and ask for a rate reduction. If you've been paying well for a while, they often agree. A 20-minute call can save you thousands.
2. Debt consolidation
Moving several expensive debts to a lower-rate loan can speed things up. Warning: only works if you stop using the cards you freed up.
3. Extra income
Any extra money (freelance, selling stuff, overtime) goes 100% to debt. It's the biggest accelerator.
Track every dollar
Getting out of debt requires absolute cash-flow control. Knowing how much you have to "attack" debt each month is critical. MiCash has a debt module that visualizes progress — watching the bar go down every month is incredibly motivating.
The most common mistake
Paying off debt while still spending the same on luxuries. If you're going to get out of debt, you have to tighten up temporarily. Not forever — just until you're free.
Conclusion
The best debt-payoff method is the one you'll stick with to the end. The math matters, but psychology matters more. Pick one, automate extra payments on payday, and celebrate every debt killed. Financial freedom starts the day you pay off the last installment.