Simple Ways To Begin Paying Off Debt

There’s no doubt that drowning in debt feels overwhelming, especially when you’re already living on a limited or fixed income. But by making a plan and sticking to it, you can begin to turn your financial situation around. Really.

The key, financial experts agree, is finding a payment plan method that works for you. AARP Foundation, which has been helping people find affordable ways to secure the essentials for more than 60 years, is sharing details on the two most popular methods: Snowball and Avalanche.

We also outline how to spot any debt relief scams and take advantage of trusted, free debt credit counseling services.

Build Momentum with the Snowball Method

With the snowball method, you focus on eliminating your smallest debts first. Just like a snowball picks up size as it rolls downhill, your sense of accomplishment builds with this approach, motivating you to keep paying down your debts.

Here’s how it works:

List your debts (excluding your mortgage, if you have one) from smallest to largest, regardless of interest rate.
Make minimum payments on all your debts except the smallest.
Pay as much as possible on your smallest debt.
Repeat until each debt is paid in full.

Reduce the Interest You Pay with the Avalanche Method

With the avalanche method, you focus on paying off the debts with the highest interest rate first. From a mathematical viewpoint, paying off high-interest debts decreases your overall amount of debt. That feels good too, but it takes a longer-term approach to eliminate a larger debt, which can affect your motivation.

Here’s how it works:

List your debts (excluding your mortgage, if you have one) from the highest interest rate to the lowest.
Make minimum payments on all your debts except the one with the highest interest rate.
Pay as much as you can on the debt that charges the most interest.
Repeat until each debt is paid in full.

Learn more about both approaches — and why some people combine methods — here.

What About Debt Consolidation?

If you’re been struggling to pay off your debts for a while, you may have noticed advertisements for loan consolidation where you can combine your debts and pay them off with one monthly payment.

There are some red flags to watch out for with debt relief scams. Scammers typically ask you to pay up front before they settle any debts with your creditors. Be wary of companies offering guarantees to reduce your debt by a set amount.

Reputable companies may charge for their services, but can only collect from you once you see results. Plus, they tend to offer financial counseling on budgeting and money management, oftentimes at no charge.

To find free or reduced-cost financial counseling services in your area, visit the AARP Foundation’s Local Resource Directory, search under Money, Financial Education, Credit Counseling. You don’t have to be an AARP member to use the directory.

AARP also offers a free Personal Debt Consolidation Calculator you can use to determine if this option is right for you.

Finally, Money Management International is another nonprofit that offers free credit counseling services where you can learn about possible debt management plans. If you qualify under the U.S. Department of Health and Human Services poverty guidelines, you may be eligible to receive a fee waiver for the debt management plan’s one-time set up fee and monthly plan maintenance fee.

Get By With a Little Help from Your Friends

Remember, you’re not the only one struggling to pay off debt, especially these days.

I am retired and living on a fixed income. I have sat down and listed my monthly expenses and have found ways to save at least 10% of my monthly income. I am doing this by changing my spending habits. I am now spending less on ‘wants’ and focus only on ‘needs.’
Retiree

In addition to getting financial advice from trained counselors, ask your friends and family how they approach paying down their debt. You’ll get much-needed emotional support as you begin your debt reduction journey.