7 tips to pay off your debt quickly and become debt-free : Life Kit It's easy to get into debt, but harder to get out of it — especially if you don't have a plan. This episode offers strategies to help you pay off debt.

How to pay off your debt in 7 steps

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We are in a mythological landscape.


ARNOLD: It's a dreary swamp in what is now Germany. And a man named Baron Munchausen, he's riding his horse, his mighty steed...

AYELET FISHBACH: Munchausen is one of my favorites.

ARNOLD: That's Ayelet Fishbach. She's a psychologist who studies human motivation. And she told me this story about the baron because she finds it instructive about how we can do really difficult things in life. So the baron, he gets himself into this bad situation. He rides his horse into this swamp, and he starts sinking into the mud. The swamp is taking him. Like, he's going to die.

FISHBACH: This guy indeed got stuck in this swamp. And he basically takes his hair with his, like, both hands and pulling himself by his hair outside of the swamp. And he's strong enough so that not only can pull himself, he can also pull the horse that he's holding between his legs. So that if you can imagine the picture, that looks quite fantastic.

ARNOLD: Now, I have to admit, when Ayelet told me this story, I could not imagine this picture. I mean, the guy with the horse in his legs and his - how do you pull yourself out of a swamp by your hair? I mean, is his hair really long, and he lassoes a tree? It just doesn't seem to make sense. I totally didn't get it.

FISHBACH: And no, clearly physically impossible.

ARNOLD: (Laughter).


ARNOLD: But Ayelet says what this fable is trying to tell you is something bigger. So she and I were first talking about digging out, not from a swamp, but from a big pile of debt and how people find the motivation to do that - to really cut back on their spending dramatically and do all the things you have to do, make really big life changes.

FISHBACH: You also, in the process, learn that you can pretty much apply yourself and do things that seem impossible. And you can commit to something that takes a couple of years, and you can achieve it.

ARNOLD: Yeah, I think I finally get the Baron Munchausen thing with the hair. I mean, the thing is - the whole point is it's impossible to pull yourself out of a swamp by your hair. But if you are motivated, and you believe in yourself, the idea is you can do the impossible or the thing that you thought was impossible.

FISHBACH: Exactly.


ARNOLD: This is your NPR LIFE KIT for getting out of debt. I'm Chris Arnold. I cover personal finance and consumer protection. And in this episode, we're looking at a range of the most powerful tools and approaches, stuff that's been proven by research to work, to help you pull yourself out of the swamp, to get out of debt and get your feet back up on solid ground, just like Baron Munchausen. We're going to learn how right after this.


ARNOLD: Debt is kind of a strange thing. I mean, we heard from listeners who are smart, well-meaning people when it comes to money, and they let themselves rack up 20, 30, $40,000 in, say, credit card debt. And that seems kind of crazy, right? It's like, oh, I know. OK, I'm already in $20,000 of debt, and I can't afford my bills. So my solution is, I'm going to take on more debt and just sort of hope that this works out. I mean, why do we do that?

ABBY SUSSMAN: When you're in debt already, taking on more debt makes you feel wealthier.

ARNOLD: That's Abby Sussman. She's a professor at the University of Chicago who studies the psychology of financial decision-making. And she says our brains play all kinds of tricks on us when it comes to money and being in debt. She says, here's one reason that taking on more debt seems like a good idea at the time...

SUSSMAN: You actually consider the extra dollar that you get in assets from taking on the extra dollar of debt to be more important than the dollar of debt. So in that case, actually taking on more debt can even make you feel wealthier than you otherwise would.

ARNOLD: So we feel better. We feel wealthier, but we're actually more screwed. We're sinking deeper into the swamp.

SUSSMAN: That's exactly right. That's exactly right.

ARNOLD: And there are a bunch of other ways too that our brains lead us astray. Abby says we're too optimistic about being able to catch up. We underestimate what our expenses are going to be, even just, like, next month. So she says this whole debt thing, it can be kind of devious and easy to fall victim to.

MICHELLE SINGLETARY: I hate debt. I hate it so much that if debt was a person, I would slap it.

ARNOLD: That's Michelle Singletary. She's with The Washington Post. She's a columnist and author who's written books about getting out of debt. And she works one-on-one with lots of people to help them do this too. And Michelle says because debt can be such a tricky adversary, you need a good plan to defeat it. And that's our first big takeaway here. Call it tip number one.

SINGLETARY: You absolutely need a plan. It's like anything else that you decide to do. Let's talk about driving. If you're going to a place you've never been before, now you've got GPS. You've got Google Maps. And so you plot out how you're going to get there. It's the same thing with your debt. If you don't have a plan, you're most likely going to fail.

ARNOLD: One reason a plan is so important is because it gives us a default answer to all sorts of spending decisions that pop up every day. And in the moment, it's really tempting to just spend the money if you don't have a plan in advance. It's like, ah, it's the end of the day. I'm hungry. Let's buy Chinese food.

SINGLETARY: But when you decide to come up with a plan to get out of debt, and you've got that plan, that makes it easier to say no to something.

ARNOLD: OK. So we can't just wing this. We need a good plan. But what plan?


ARNOLD: Abby says the first decision you have to make here has to do with snowballs and avalanches. That sounds a little random, but those are the nicknames for two different approaches to attacking your debt. So with the avalanche method - we'll look at that first - basically you list all your debts, with the highest interest-rate debt at the top of the list.

SUSSMAN: If you have two credit cards, and one has a 13 percent interest rate, and one has a 17 percent interest rate...

ARNOLD: Then you put all the money you can towards paying off the 17 percent-rate credit card first because it's charging you the highest interest rate. I mean, that makes sense, right? And you just pay the minimums on everything else. And then, when you pay off that card, then you move down to the 13 percent card and so on and so forth. So it's like an avalanche, falling down that mountain of debts to the next highest rate, and down you go.

SUSSMAN: You'll be much better off from an economic perspective paying off that highest interest-rate debt first because essentially you'll have less total debt to have to pay off over time.

ARNOLD: So that seems pretty straight ahead and logical, but there is a wild-card factor here that has to do with motivation. And Michelle explains that's where the snowball method comes in. That plan says something a little different. It says, you know what? Screw the math, as far as paying the highest interest rate first.

SINGLETARY: If the folks who are in debt had looked at logic and math, they wouldn't be in debt in the first place. So you didn't use math to get in debt. Now you're going to try to go to logic to get out of it? No, we got to look at behavior.

ARNOLD: And the snowball method is all about behavior and feeling motivated by small wins. So you make a list of all your debts, not by the interest rate, but by the balance - how much you owe - and starting with the smallest debt at the top of the list. So if that's a credit card with only 200 bucks on it, you attack that. You go at it and pay it off. And you pay it off really quickly, and then, boom - you get a win.

SINGLETARY: And what the studies show is that when people have immediate progress, that they get rid of some debt, that energizes them. That encourages them.

ARNOLD: We heard from a bunch of listeners who did this, and a lot of them say it actually works. Like Jason Moyngen (ph) from Minnesota.

JASON MOYNGEN: Once we started paying the smallest bills that we had off, we did feel like we'd made some momentum. And it was just a psychological win. And so we just kept paying off more bills and more bills and throwing it at the next largest bill, and we felt like we were making progress.

ARNOLD: And you get religion about the whole thing, and pretty soon, it's like go, go, go - pay off your debts really fast because you're more committed to it.

SINGLETARY: That's exactly right.

ARNOLD: Abby says, though, if you don't need that motivation, if it was her, she'd do the avalanche method and pay the higher interest-rate debt first because, in the end, you're paying off less money if you're throwing the same amount at your debts. So the takeaway here, tip number two - do some soul-searching and decide if the avalanche or the snowball is the right approach for you. You know, whichever way you decide to go, it sounds like you're saying the most important thing to do is to pick an approach and really be motivated and go after it, you know.

SUSSMAN: I think if you have a plan, and you follow the plan, that that will be much more effective than approaching this at random, for sure.

ARNOLD: OK. Takeaway number three - and I apologize in advance. This is the painful part. But in order to have the money that you're going to need to pay off these debts, you are going to have to start spending less money. The math is pretty simple here. This just has to be part of your plan.

SUSSMAN: I mean, so there are two levers, right? You can spend less, or you can earn more. And I think for a lot of people, the earning more option is not a feasible one, and so I think spending less becomes critical. And I suspect that this is something that most people do realize is important. It's just hard to do.

ARNOLD: And it's even harder to do if you don't make very much money. We heard from a lot of you who were in that position. So I brought this up with Michelle. And I said, you know, look, people say, I just don't have any wiggle room. The system's not fair. I don't make enough money. Saving and paying down debt, it just feels like it's impossible.

SINGLETARY: Yeah. I - you know, I get that. Let me just say this because a lot of times what financial experts say, you still got to do it. You know, people are like, well, you don't know. You don't understand. Let me tell you something. I completely understand. I was abandoned by my parents. I went to live with my grandmother. Before my grandmother took us in, I knew hunger. Like, there wasn't food in the refrigerator. And I don't mean that there wasn't choices in the refrigerator. I mean there was nothing in the refrigerator.

So I understand poverty at a level that some experts don't, right? I mean, my grandmother made, like, $13,000 through most of her life. So she couldn't give me money to help. So even as a young adult, it was all on me, starting out at my new job. And I was also helping a disabled brother. So I totally get that there's not a whole lot to stretch. I know what it's like. But I also know that you can't overspend and spend what you don't have. So if you're a young adult starting out, that means that you've got to make different decisions.

ARNOLD: Different decisions. All right. We're going to go through a bunch of strategies that will help you make better decisions about money. And one big thing you can do is, look, you just have to have a budget. There's all kinds of reasons to do that. And don't be intimidated about it. Just sit down and do it.

SINGLETARY: Listen. My grandmother budgeted on the back of an envelope from junk mail. Pretty simple.

ARNOLD: We've got a whole episode about how to be the master of your budget, as we call it. It's in our LIFE KIT guide called Find Money You Didn't Know You Had. And that gives you tons of good advice about what a powerful tool a budget can be. So definitely check that out.


ARNOLD: Another way to spend less is to go cardless - you see what I did there - as in ditch the credit cards. Michelle says don't close the credit card accounts, though, 'cause that'll hurt your credit score. But the cards themselves...

SINGLETARY: You've got to put the cards away. Cut them up. Put them in the freezer. Put them in an ice tray. But you've got to take them out of your wallet.

SUSSMAN: Yeah. So there's research that looks at what's called the pain of paying that does provide support for the idea that people will pay less when they're using cash. There are ways that this can be helpful, but you should also make sure to know what you're spending that cash on.

ARNOLD: And that gets at another proven way to spend less money. You put that cash in envelopes. That's called the envelope method. So let's say you've budgeted 50 bucks for eating out in a month. You take that $50, and you stick it in an envelope. Then you just write with a Sharpie on the envelope, eating out. And then when you spent that money, that's it. It's gone. And you do the same thing for clothes and groceries and anything else in your budget. And it might seem a little silly. Like, ah, come on. What's with all these envelopes? But it can actually work. Abby says there's a behavioral thing that goes on where we tend to respond to these limits.

SUSSMAN: The envelope creates a physical partition that people really don't want to break past. So if this is all of the money that you've allocated towards the supermarket, you really don't want to sort of break into the next envelope to use additional money for your supermarket bills.

ARNOLD: But here's the thing. If we're too busy nickel and diming ourselves, though, getting, say, the store-brand pasta, that only goes so far. So Michelle says don't forget the big stuff. It's important to reassess the things that you spend the most money on, like your rent and your mortgage. And living alone - it's nice, but maybe you just can't afford that right now.

SINGLETARY: If you - in a house or an apartment, you've got an extra room. Bring in a roommate. So I'm a big believer in shared housing. That is one way to find some of the money to apply to your debt.

ARNOLD: Or five roommates. Or live with your folks for a while if that's an option.


ARNOLD: So let's say, you know, you're doing all this - the budget, the envelopes. We heard from some of you, though, who wanted to do something more radical. And this is our next takeaway - tip number four, you can try something called a spending fast. We heard from Marie Tweedy (ph) in Seattle. And she'd gotten married. And she was spending money and put it on a credit card or multiple credit cards. And she'd spent a lot of money on this wedding.

MARIE TWEEDY: And I looked at the number. I knew it was high, but I was shocked by how high it was.

ARNOLD: It was over $40,000 in credit card debt.

TWEEDY: This is just credit card debt - $40,000 of credit card debt.

ARNOLD: And Marie's kind of laughing here, so she doesn't cry. But she says this was pretty painful.

TWEEDY: I tallied up the interest I was paying a month. And it was $400 a month. It was totally overwhelming, that number - $400 a month of my money going towards interest.

ARNOLD: That would, like, give me hives if I was paying - I hate paying interest. It's terrible. So anyway, Marie read about this thing. It's called a spending fast, where you want to get out of debt really fast. You just close all the spigots. You shut down all the spending.

TWEEDY: I cut out all unnecessary spending. So that included any unnecessary clothing that I wanted or thought that I needed, going out to dinner with my husband, picking up food just because it was convenient and I didn't feel like cooking. I cut out my morning coffee. I cut out going out with my friends for drinks.

ARNOLD: Morning coffee, no drinks. This sounds painful.

TWEEDY: Yeah. It was a lot of sacrifice, but I learned a lot about myself, about self-control. And it taught me to be more intentional with deciding how I'm going to spend my money. So in the first couple of months, you know, I wiped out over $5,000 of my debt.

ARNOLD: Wait. Five thousand dollars off that debt in just a couple of months. I mean, that's pretty impressive.

SINGLETARY: And that amount that she found is not unusual for someone making, like, a middle-income salary. To find that much in a couple months - that is totally doable from my experience.

ARNOLD: And Michelle says the other bonus here is that once the spending fast is over, you've learned what you can live without.

SINGLETARY: Once you shut everything down, you go, OK, I really do want my cup of coffee. I really do want to go to the hairdresser. But you know what? I can bring in my lunch. That's, like, nothing to me. I can just make a quick sandwich, and I'm good. So you start to only add back the things that matter to you.

ARNOLD: Marie did that. And when we last talked to her, she'd paid off about half that $40,000 in credit card debt in about a year. I mean, that's really fast. And so, by the way, our next episode on this guide is actually all about spending fasts and extreme debt reduction and how to stay motivated and stick with this for a long time. So check that out.


ARNOLD: Now, there might be a moment when you come into a little extra money. Doesn't happen all the time in life, but it does happen. Maybe it's a bonus from work, your tax refund check - 500 or a thousand bucks. And it can be really tempting to just spend that on something fun. That's, like, our natural human instinct. And, actually, giving yourself little treats to reward yourself while you're paying off your debt, doing something hard like that - there's research that shows that that can be really motivating. That's a good idea. But if you get a big pile of money - and this is takeaway number five - Abby says don't blow it. Use that money to pay off your debt.

SUSSMAN: There's some really interesting research by Zhenling Jiang, who looks at the case of bonuses. And what she finds is that people tend to be more likely to take out auto loans and purchase cars right after they receive a bonus. What she finds specifically is the fact that people who are buying cars right after receiving a bonus are more likely to default.

ARNOLD: So what Abby is saying is not only are we likely to blow the extra money on a car, but we buy cars that we can't even afford with the extra money. So Abby says if you get a windfall - your tax return money, whatever it is - just resist that urge and use the money to make some really good progress towards paying down your debt.


ARNOLD: One of the most painful parts of being stuck in a pile of credit card debt is paying those punishing interest rates, right? I mean, like, 20 percent interests - it's just painful. It's like you're bleeding money. Could be thousands of dollars when you have a lot of debt. It's just the worst. So there's this thing called debt consolidation. And here's how it works. Let's say you've got a bunch of credit cards. And you owe 30 grand on them. And the interest rates are all really high. You will obviously save money on interest if you can pay off at least a big chunk of that debt with a lower interest rate loan. There are a lot of ways to do this - a balance transfer offer from another credit card or a personal loan. Probably not as good an idea is a home equity line of credit. But this is tip number six. Michelle says be careful when it comes to debt consolidation.

SINGLETARY: I don't often recommend debt consolidation for a couple of reasons because often what happens is people consolidate the debt. Now they've cleared off credit cards. And then guess what happens?

ARNOLD: Then they think, oh, look. See? We dealt with this. You know, problem solved.

SINGLETARY: Right. And they go back and start to charge up the cards. We have had people use their home equity to pull money out of their homes, the equity of their homes, pay off a bunch of debt. Now those cards are clear. And they see clear credit cards. They start charging them back up. So now they've got - they're back in credit card debt. And they've put more debt onto their homes.

ARNOLD: And if you can't pay back a ballooning home equity loan, you might be putting your house at risk. Also, Michelle is in the camp of personal finance experts who just feel like you need to pay off that debt as quickly as possible and just use those punishingly high interest rates as motivation to do that. And doing anything else, she says, is just like shuffling deck chairs around on the Titanic.

SINGLETARY: I want you to suffer while you're getting out of debt because it is through that suffering that you learn your lesson. That is another reminder that you don't need to come back here again.


ARNOLD: OK. I actually have something to admit here. I'm not so into suffering. And sometimes, I'll use those balance transfer offers from credit card companies - you know, zero percent for 18 months. And if I spend a few grand on a family vacation, I'll just use that to pay it off over time. And I always do pay it off. And I figure it's a super cheap way to borrow money. So I asked Michelle what she thought about that.

SINGLETARY: So can I really be truthful?


SINGLETARY: It's just me and you, right?

ARNOLD: Well, sure. Let's say it is.


SINGLETARY: I would say that if you're putting a vacation on a card that you then have to pay off over time - that you can't afford that vacation.

ARNOLD: Yeah, that is one perspective.

SINGLETARY: It's the right perspective...


SINGLETARY: ...'Cause you did ask me.

ARNOLD: I did. I did.


ARNOLD: Part of Michelle's concern here is that these balance transfer checks have a zero percent interest rate for a limited time. And after a year or whatever the deal is, the interest rate's going to go way up. And the industry makes money because people screw that up and get stuck with a high interest rate.

What I do is I set up automatic payments from my checking account, so I'm sure to pay it off before that happens. And Abby, on the other hand, has more of my thinking on this. So she says, look. If you have credit card debt and you can lower the interest rate with no negative consequences, she says that is going to help you.

SUSSMAN: Because, essentially, you'll have less total debt to have to pay off over time. And so wouldn't you rather have to pay a lower bill than a higher bill?

ARNOLD: You definitely want to do your homework, though, when you're thinking about this debt consolidation thing and paying off one kind of debt with another loan. For example, there are a lot of times when it's not a good idea to consolidate student loan debt. And medical debt, too, you usually do not want to pay off with some other kind of loan. We have a whole episode on medical debt. So definitely check that out if you're dealing with medical bills. There's tips for how to get hospitals to dramatically lower your bill, for example.

So look. If this is sounding complicated, it's because some of it is. And when you're getting out of debt, there is a lot that you can do by yourself. But there are also times when things do get complicated. And if you're feeling overwhelmed or you're not sure the best way to go - this is our last tip, tip number seven - sometimes, getting some one-on-one help is a good call.

SINGLETARY: So I'm a big believer in seeking out help and teaming up with people who can help you because this stuff is really hard.

ARNOLD: Michelle runs a debt counseling program at her local church. And she says if you're looking for a good counselor who you can trust - and that's important because there's a lot of get-out-of-debt kind of scam-y (ph) operations out there - she says it's good to go to a nonprofit.

SINGLETARY: That's key. Nonprofit.

ARNOLD: One good resource for that is the National Foundation for Credit Counseling. They have a website, nfcc.org. And you can type in your zip code there, and they'll tell you where nonprofit counselors are near you.


ARNOLD: And finally, as you head down this road of getting out of debt, this exciting but hard road, whether you do the snowball or the avalanche, or you want to go hog wild and try the spending fast, Michelle says before you do any of that, do this too.

SINGLETARY: The most important thing you need to do when you have a lot of debt is to forgive yourself because you need to take that step first so that you lay the groundwork for success. If, during the whole process, you're beating yourself up, or - if I had only known, and I shouldn't have done this, you're just not going to gain a lot of ground because you're going to start off with a very negative approach to paying off your debt. Just say, you know what? Life happens. I'm in the situation. And so now I've decided in my life that I'm going to take the steps to get out of debt. And that's where you should start first.

ARNOLD: You know, if Baron Munchausen had been all super negative and down in the dumps, he never could have pulled himself and his horse out of that swamp, right? You can do this.


ARNOLD: OK. So we covered a lot of ground here. And to help us remember the most important stuff, here come the big takeaways. Number one, you absolutely need a plan.

SINGLETARY: If you're in debt, you need a debt plan. You need a plan to get out of debt. Otherwise, it's like taking a trip, and you have no idea where you're going.

ARNOLD: Tip number two, do some soul-searching and decide if the avalanche or the snowball is the right approach for you. OK. Takeaway number three - and I'm sorry, this is the painful part - but you are going to have to spend less money if you want to pay off your debt. But remember, there's lots of good ways to do that, right? Using the cash, the envelopes, get a roommate.

SINGLETARY: A budget is not a bad word. And a lot of people think budget is about denying yourself. No, no - a budget tells you what you can do.

ARNOLD: And our next takeaway, tip number four, you can try something called a spending fast.

SUSSMAN: Pick a brief period of a month or two to dramatically reduce your spending. And this will hopefully help you form better habits as well.

ARNOLD: Yeah. And you might slam through two, three, four, $5,000 worth the debt, just pay it off really fast. All right, takeaway number five, Abby says don't blow extra money when you get that tax return or, you know, that month that comes along once a year, whatever, when you get an extra paycheck. Use that to pay off your debt.

SUSSMAN: Think about that as an opportunity for savings or for having money that's built up that you can actually use to repay debt and put you in a better financial position.

ARNOLD: And our next tip, tip number six, Michelle says be careful when it comes to debt consolidation.

SINGLETARY: It works for some. But most of them end up right back where they are because they haven't gone through the process of making sure they understand why they're in debt and that they shouldn't go back here again.

ARNOLD: And finally, our last tip, tip number seven. Sometimes when things get really complicated, hard - you don't make the wrong decision - getting some one-on-one help is a really good call. Just make sure it's with a nonprofit agency.

SINGLETARY: So it helps to have someone or have a program that you can go to where it can encourage you to stay on that path.


ARNOLD: For more NPR LIFE KIT, check out the next episode in this guide. It's all about extreme debt reduction strategies. This is when you're in, like, serious trouble, a lot of debt. You want to dig out fast. It's not for the faint of heart, but you can do it. And if you like what you hear, make sure that you check out our other LIFE KIT guides at npr.org/lifekit. When you're there, subscribe to our newsletter so you don't miss anything. We've got more guides coming out every month on all sorts of topics. And finally, as always, here's a completely random tip, this time from Stacy Curran (ph) from Stratham, N.H.

STACY CURRAN: If you're having a hard time getting your kids to know your phone number, here's a tip. Recently I made my passcode my phone number. And inadvertently, my children learned my full phone number with area code. And it was an accident that we are thrilled about, and we've passed the tip on to many of our friends.

ARNOLD: NPR LIFE KIT is produced by the fabulous Sylvie Douglis, Alissa Escarce and Chloee Weiner. Meghan Keane is our managing producer. Our digital producer is Carol Ritchie. Music by Nick DePrey and Brian Gearhart (ph). Our project manager is Mathilde Piard. Neal Carruth is our general manager of podcasts. And the senior vice president of programming is Anya Grundmann. I'm Chris Arnold. Thanks for listening.


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