10 Steps to Paying Off High-Interest Debt

In a perfect world, we'd all have plenty of money, but debt is just part of life for most people. That said, some debt is better than others. High-interest credit card or payday loan debt is one of the worst types you can have. The high interest rates make it difficult to get rid of, and your balance can balloon quickly if you're not careful.

But escaping from this kind of debt is possible. You just need the right strategy. Here are 10 tips that can set you on the path to freedom.

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The first thing you need to do is take stock of all your debts so you can decide on the right approach. Make note of all the loans you have and any credit cards with balances and record the balance and annual percentage rate (APR) on each of them.

Keep this information handy and track your progress periodically. This can help you stay motivated.

Budgeting isn't the most fun thing to do, and it's not always going to be enough on its own to get you out of debt. But tracking where your money goes can sometimes help you identify areas of overspending. Cutting back in these areas could help you free up more cash to put toward your debt repayment.

Budgeting a portion of your savings for debt repayment can also help you stay focused on the goal and give you an idea of how long it will take you to pay off all your debts.

ALSO READ: The Best Budgeting Apps for 2022

Tax season is upon us, and many of us can look forward to a refund this year. This could go a long way toward helping you pay back your debts.

Look for other opportunities throughout the year to make large, one-time payments toward your debt, too. If you get money for your birthday or a raise or year-end bonus from your job, put that toward debt repayment as well.

The debt avalanche method is a strategy for paying off debt on multiple credit cards as quickly as possible. To do this, you make the minimum payment on all your credit cards every month. Then, you put any extra cash you have toward your card with the highest interest rate first.

Once that's paid off, you move onto the card with the next-highest interest rate, and so on, until you're debt free.

If the debt avalanche doesn't sound like a good fit for you, you can try the debt snowball method instead. This is similar to the avalanche method, but instead of putting your extra savings toward the card with the highest interest rate first, you focus on the card with the smallest balance first. Then, once that's paid off, you move to the next-smallest balance, and so on.

It will ultimately cost you a little more money to pay your debt off this way. But it can give you a little more encouragement in the beginning as you see some of your smaller debts disappearing.

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Sometimes, getting a break on your credit card interest rates is just as simple as calling and asking. If you've always paid at least your minimum balance on time, it's worth a shot.

Highlight your loyalty to the company if you've had the card for a while. You can also use a competitor's card offer for leverage. Make your request for a lower interest rate, but remember to be reasonable. Your card issuer isn't going to stop charging you interest altogether just because you ask.

ALSO READ: How to Lower Your Credit Card Interest Rate

Cash back credit cards may enable you to apply some of the rewards you've earned to the credit card balance. This may not shave that much off your bill, but every little bit helps. Make a habit of applying your monthly rewards to your bill instead of spending them until your debt is paid off.

Balance transfer credit cards have a 0% introductory APR window that temporarily halts the growth of your balance. This might be the help you need to finally get out from under your debt.

But you should note that there are fees associated with a balance transfer. And if you plan to do this, you need to choose a card with a different issuer. You won't get a balance transfer deal if you try to open a new card with an issuer you're already working with.

A personal loan is an alternative to a balance transfer card. You'll get a predictable monthly payment, and you won't have to put up anything as collateral.

But because of this, these loans tend to have higher interest rates than loans that do have collateral. This is especially true for those with poor credit.

ALSO READ: 4 Signs a Personal Loan Is a Better Option Than a Credit Card

When it's not possible to cut anything more from your budget, you might consider adding a side hustle to bring in some extra cash. There are plenty of opportunities out there today, including many that can be done entirely online. Think about your strengths and your interests and look for a side hustle that aligns with that.

If you do this, make sure you're setting aside a portion of your income for taxes as well as your debt repayment. Otherwise, you could find yourself in trouble with the IRS.

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Once you've gotten out of debt, you should create a plan to help you avoid falling back into it. That might involve creating an emergency fund, if you haven't already, and watching how much you spend so you don't rack up new debt.

Check in with yourself every couple of months to see how you're doing and make changes to your budget as necessary.

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