How to Find Your Best Path Out of Debt in 2024

Getting out of debt is a common financial goal, but as anyone who's ever attempted it will know: It's much easier said than done. Here are some strategies you can utilize to create a debt payoff plan in 2024, including what factors to consider to make a plan that works for you.

Debt payoff methods to consider

At a high level, there are a couple common methods for getting out of debt that can provide different benefits: The debt snowball and the debt avalanche method.

The debt snowball method is often better at providing a sense of accomplishment, which may help you stick to the plan. It requires you to list out your debts by debt amount, from smallest to largest. You pay off the smallest debt first, then move on to the second-smallest, and so on. Meanwhile, the debt avalanche method has you order your debts by highest interest rate to lowest interest rate. By focusing on the highest-rate debts first, you'll be able to save more money long term.

With both methods, once you paid off a debt, you'd include the minimum payment amount that that debt carried over to the next debt to increase the impact. For instance, if you were paying $200 a month extra toward a debt with a $100 monthly payment, you'd start paying $300 extra toward the next debt on your list.

The best option will be whichever one you can see through to the end. And if that means getting rid of the debt that causes you the most stress first, that may be the way to go, even if it means paying more over the long term. Regardless, you'll need to pay more than the minimum payment due to pay off your various debts faster. So reducing spending and increasing your earnings is always going to help.

Tips to get out of debt faster and easier

There are several financial tools that you can use to get out of debt faster, but you'll need to know a few basic things about your finances first, like:

• Existing debt amounts and interest rates
• Your current credit score
• What types of relationships you have with your existing creditors

If you have high-interest debt, and can qualify, you may want to consider using tools like a debt consolidation loan or balance transfer credit card to lower your rates and save money. That will not only help you save, but it will also mean that the money you do put toward that debt will go further. You'll usually need good credit (that's a score of 670 or higher) to qualify, but some credit unions will be more flexible on their requirements if you have a long, positive relationship with them.

Refinancing, like taking out a debt consolidation loan, can be tricky in a high-rate environment, like we're seeing in early 2024. So it's important to use a refinancing calculator to make sure it's worth paying a balance transfer or origination fee.

That said, you also need to understand your risk for taking on additional debt (based on things like your health, job or income security, and the types of debt you have). It can be tempting to throw all of your extra cash at getting out of debt and speed up the process. But effective debt payoff strategies should always consider the savings side of your finances.

As a general rule, try to build up an emergency fund that can cover at least three to six months' worth of necessities, like rent, utilities, and minimum debt payments. That way, you may minimize or even avoid having to take on more debt, which will cost more in the long term.

Examples of debt payoff strategies

Let's say you have the following debts:

Assuming you have $500 a month to contribute beyond those minimum payments, here's how a few different payoff methods would play out:

• Minimum payments only: It would take you 36 months to get out of debt, assuming you'd never make another charge on any of your cards. And you'd end up paying about $6,704 in interest alone.
• Debt snowball method only: You'd pay off your debts in the following order: Credit card 3, 2, 1, and then you'd pay off your personal loan. Overall, you'd be debt free after 19 months, and you'd pay about $3,469 in interest.
• Balance transfer card: If you got a balance transfer credit card with a 0% APR for 21 months, and paid a 3% balance transfer fee ($615), you'd have to pay about $1,006 per month to pay that off before the introductory period is up. That's just $186 more than the current minimums. In that case, you could also pay off your personal loan in 19 months, paying just $629 in interest.

Paying off debt is challenging, and you may run into setbacks along the way. But with careful planning, you may be able to pay off your debt faster, and save money in the process.