In a recent study, it was revealed that millennials are on the hook for over $1 trillion in debt. This is a 22% increase over the last five years, meaning, as a generation, we are going the wrong way.

There is hope, because as you can see by this podcast, many young millennial families are becoming debt free. I’m absolutely amazed by that, given the average statistics, but we need more proclamations of debt freedom.

As we’re seeing in this current economic climate, debt does nothing more than expose you to risk, and it limits the options you have in your life. 

Here are six strategies that you can choose from to start working on your debt today!

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Create A Spending Plan

Before we do a deep dive into the strategies that you need to pay off your debt, you’re gonna have to be on a spending plan first. A spending plan is where you list out your expected income for the month and your expected expenses for the month. You keep track of these two variables throughout the month. 

To get started on this, you need to subtract the total of your essential expenses from your total income. Hopefully what you’ll notice is that there’s a little bit of money leftover. We call that “the gap”.

“The gap” is what you’re going to use to blaze through debt. 

Knowing how much extra you can send to debt each month is the starting point for this journey. 

Once you know where you’re starting from, or how much you can actually send to debt every single month, you can narrow down and find the best strategy that works for you and your family. 

The Debt Snowball Method 

The Debt Snowball Method of paying off debt is probably the most popular strategy. With the Debt Snowball Method, you start by listing your debts from the lowest balance to the highest balance with zero regard for the interest rate.

Don’t even write the interest rate down because it is irrelevant when using this method to pay off debt.

From there, you pay the absolute minimum on every debt except the one with the smallest balance.

When you’re looking at the one with the smallest balance, you’re going to take whatever amount you have available from “the gap,” and you’re going to send that extra amount of money to the smallest debt, along with the minimum payment that you’re already supposed to pay, until that debt is completely paid off.

Once you’re done with that smallest debt, you’re going to take “the gap,” plus the minimum that you were paying on the smallest debt, and you’re going to apply all of that to the next smallest debt. 

The goal with using the Debt Snowball Method to pay off debt is to get quick wins. Those “quick wins” will keep you motivated in the early days. 

The problem with the Debt Snowball Method is that it isn’t always the most optimized solution for your particular situation. You could end up paying a little bit more in interest over time.

With that being said, this method is an effective option for those who are new to trying to manage money, because it does build positive financial habits while also getting you excited and pumped up about debt payoff progress.

The Debt Avalanche Method

The Debt Avalanche Method is similar to the Debt Snowball Method.

Except instead of listing from smallest balance to largest, you list your debts from the highest interest rate to the lowest rate, regardless of balance. 

With this method, you pay the absolute minimum on every single debt except the one with the highest interest rate.

You take whatever amount you have available from “the gap,” and you send the extra amount to the highest interest rate debt, along with the minimum payment until it’s gone. 

Once you’re done with that debt, you move on to the next highest interest rate debt. 

The goal with using the Debt Avalanche method to pay off debt is to save you money on interest. 

The problem with the Debt Avalanche Method is that you can find yourself paying off a super high balance early on. 

I’ll be honest, if you’re starting with a $20,000 car loan or another large debt, after about six months, it could feel like you’re not making any progress if you haven’t actually paid something off. 

The trick is to keep track of everything. You can do this with my monthly recap form, which is on my website. 

The Debt Hybrid Method 

Most people will find the Debt Hybrid Method to be one of the better options for them on their debt-free journey.

This debt elimination method basically combines the best parts of the Debt Snowball Method with the best parts of the Debt Avalanche Method. 

Start by listing your debts from the lowest balance to highest, just like the Debt Snowball Method. From there, also list the interest rates right next to them– just like the Debt Avalanche Method. 

I recommend starting by attacking the smallest balance, just like with the Debt Snowball Method. That’s exactly what we did when we were paying off our debt. 

You may notice that two debts have a similar balance, but one might have a large interest rate. 

For example, let’s say you have two loans. One of them has an $800 balance at 4% interest. The other loan has a $1,000 balance at an 18% interest. 

The Debt Snowball Method guides you to attack the $800 balance, and ignore the $1,000 balance. 

The Debt Avalanche Method guides you to focus on the loan with an 18% interest rate. 

With the Debt Hybrid Method, you could start with the $1,000 balance and then the $800 balance. Once you get to the $1,000 to $800 balance, you can attack the loan one with the high interest rate and put the  $800 loan with the lower interest on hold. 

With the Debt Hybrid Method you can flip the order and prioritize that interest rate when it’s appropriate.

The goal with the Debt Hybrid Method is to give you the same quick wins, the same motivation and the same momentum the Debt Snowball method offers, while also lowering the amount you pay in interest.

Highest Monthly Payment Method

The next method for paying off debt is a method for people who need a little wiggle room in their budget– like immediately.

This is for the folks that budget and only see a tiny amount of wiggle room. Their “gap” is super small. Most people in this category feel financial anxiety.

If you’re in this camp, list out all of your debts in order of highest monthly payment to the lowest monthly payment. Then, pay the absolute minimum on every debt except the one with the highest payment. 

From there, take your “gap,” plus your minimum payment to the debt with the highest monthly payment until that first one us gone. Once that debt is gone, you’re going to take that extra from “the gap,” plus the minimum payment, and you’re going to apply it to the next step on the list. 

The goal with the Highest Monthly Payment Method this is to free up additional cash flow for your budget each month. 

If you find yourself really strapped, this method could be a way to get a little bit of wiggle room. 

The problem with using the Highest Monthly Payment Method to pay off debt is, you could be starting with a big balance debt like a car loan and it could take you a few years to get it paid off. 

With that said, this method of paying off debt is a great way to do things, but I’ll be honest, it’s not going to be for most people. It’s a method that could work if your largest payment won’t take too long to pay off, and you need that wiggle room in your budget. 

Highest Credit Utilization Method

This strategy is going to be for people hoping to improve their credit score on their debt-free journey.

Maybe you have a goal to buy a house once you’ve paid off your debt.

With this strategy, by the time you become debt free, save an emergency fund, then save a down payment, you’ve boosted your credit score because your credit score isn’t being hindered by high utilization numbers, because utilization makes up about 30% of your score. 

You’re going to calculate your credit utilization for each debt by dividing the total balance by the credit limit for each credit card that you have. This is going to let you know which cards are driving up your utilization rate.

By doing this math, you’ll know which debt is closest to your maximum utilization credit limit. Your credit utilization is 30% of your credit score. 

If you’re really trying to improve your credit score while you’re on the debt free journey, this could be an effective method for you.

Once you have that list of highest utilization to the lowest, you pay the absolute minimum on every single debt except for the one with that highest utilization. Take whatever amount you have available from your “gap,” and send that extra to the debt with the highest utilization along with the minimum payment for that particular debt until it’s gone. 

Then, you’re going to take “the gap,” plus the minimum payment, and you’re going to apply it to the next debt– then the next. 

The goal with the Highest Credit Utilization Method is to progressively lower your credit utilization while paying off debt in the hopes that your credit score will rise. 

This is an effective debt elimination method for those who have poor or just okay credit scores, with their sights set on homeownership. 

The problem with using the Highest Credit Utilization Method to pay off debt is that it has the potential of not actually seeing the plan all the way through. If you start this method and you’re struggling to keep up momentum, maybe it’s worth it for you to switch to one of the other methods and get quick wins under your belt first. 

Highest Monthly Interest Paid Method

If you hate paying interest, this method may be the absolute best one for you to use when paying off debt.

This plan is similar to the Debt Avalanche Method, however, instead of focusing solely on the interest rate, you list your debts in order from the most interest actually paid every month to the least interest paid every month. 

Once you have those numbers, you pay the absolute minimum on every single debt, except the one with the highest interest payment every month, then you’re going to take your gap, plus your minimum payment, and send them both to the highest interest paid debt until it’s gone.

You repeat that until you become completely debt free. 

The goal with using the Highest Monthly Interest Paid Method to pay off debt is to save the absolute most money possible in interest. 

The problem with the Highest Monthly Interest Paid Method is that you could find yourself in that situation where, again, you’re attacking a car, or a really expensive student loan and you find that you’re not really making progress early on. You could find yourself losing motivation. 

While that is a possibility, it’s important to keep in mind that this particular method will most likely save you the most money on a debt free journey. 

Best Tool For Paying Off Debt

Now that we’ve gone through the six strategies that you can use to pay off debt, how do you know which one is the best? 

Even though some of these require calculating, you actually don’t have to do all that math manually. Recently, I came across this fantastic service that wants to help you pay off debt in the most optimal way possible for your situation. 

The company is called undebt.it. The best part? It’s a totally free service. 

You plug all your numbers in and undebt.it will let you know which method is the best for your situation.They do have a paid plan with additional bells and whistles, but the paid plan is not something that’s usually necessary in most situations. 

Undebt.it also allows you to make and keep track of little, one time debt snowflake payments.

For example, let’s say you get a bonus or some extra cash and you want to put that towards debt. 

On a one time basis, you can plug that one amount in and undebt.it will automatically recalculate everything for you. 

The absolute best part of undebt.it is that the platform shows you the progress you’re making. It even gives you a projected debt free date based on the plan you’ve chosen. When I say it’s an absolutely incredible, simple, easy-to-use tool, I mean it.

I truly wish there was a service like this around when we were paying off our debt because I did a lot of this math manually. 

I’m still happy to share this option with you, so that you can figure out a strategy that makes sense for your household and not just go with what’s popular when paying off debt.

Which strategies have worked for you?

Head over to our private facebook group and let me know.