New year, new slate – in January, we all feel it: that chance for a fresh start, to get things back on track. We feel motivated, re-energized – but it’s short-lived, and when facing debt, like credit card balances, student loans, or medical bills, that excitement can easily be drained by overwhelm.
Paying off debt isn’t just about numbers. Sure, you can just throw money at the bills, but if you don’t have a plan, you’ll just end up in debt again when an unexpected bill arises. To make progress, you need to balance debt repayment and saving, and you need to figure out how to pay off your debt in the most financially efficient manner.
And ultimately, debt-free isn’t the end goal. The end goal is to find financial freedom and literacy, so you don’t repeat past mistakes. Living debt-free is just a stop along the way.
STEP 1: LIST EVERY DEBT IN ONE PLACE
The first step to becoming debt-free is to have a clear, objective view of your situation. Sure, you spent the money, you know that you have the lingering medical bill from that broken arm, a couple of credit cards, one student loan, and your car payment. But have you really looked and compiled the list? When you see all the numbers in one place, you may be shocked.
Start by listing EVERY debt you owe (you can use my free debt repayment tracker!). Include:
- Type of debt (credit card, student loan, car loan, personal loan, medical bill)
- Who owns the debt
- Outstanding balance
- Minimum monthly payment
- Interest rate (APR)
- Payment due date
Now look at the full list – how much you owe overall, how much you’re paying each month, and what that payment, when compared to the interest rate, does to your debt. Scary, right? For a lot of people, spreading money across multiple debts means you never pay it down enough to not suffer from the growing interest.
Regardless, don’t judge yourself. This is simply data-finding – and we can fix it.
STEP 2: BUILD YOUR FINANCIAL SAFETY NET FIRST
The next step is to…not pay off debt. Keep making the minimum payments, but nothing more. First, you need to ensure that paying off debt won’t lead you right back INTO debt – and you do that by building an emergency fund. Prioritize saving $500 to $1,000 dollars in a high-yield savings account (no investing or anything for this, you need it easily accessible). This is in case of emergencies – actual emergencies, like car issues, vet bills, and medical copay. This can only be used for things that are a threat to your health, the health of your family, or your ability to maintain your income.
I recommend setting this account up in a different bank than your checking account, and automating a weekly transfer into it. Build it into your budget as a non-negotiable.
Once it’s in place, you’ll have a bit of peace of mind, knowing that if something comes up, all of your hard work won’t immediately be undone.
STEP 3: CHOOSE YOUR REPAYMENT METHOD
Now that you have a safety net, it’s time to plan on tackling your debt. Everyone has different ideas on the best way to tackle this, and they’re not wrong – different people are motivated by different things, and you should choose what’s best for you. The three main methods are:
The Debt Snowball
In the debt snowball method, you order your debts by balance, smallest to largest. You’ll make minimum payments on every debt, but then dedicate as much of your remaining money as possible to the smallest balance. The idea is you pay off the one debt, then roll all that money, including the minimum payment, into the next smallest debt, watching it snowball.
It’s a solid method – most people can pay off the smallest debt quickly, in just a month or two, and the easy win motivates them to keep going. It’s very visual, as you cross off debts.
The Debt Avalanche
The avalanche method, however, is actually typically a mathematically better option. For this, you’ll order your debts, highest to lowest, by interest rate – because a higher interest rate means you’re paying more for the privilege of being in debt. It may take longer to see a clear win – a completely paid-off debt – but you’ll actually save yourself money in the long run.
The Hybrid Method
Some people combine the two, basically alternating. Pay off one small debt completely, then pay off a high-interest debt, then maybe another small debt. It can work great – providing motivation while saving you at least some money, or it can be distracting and hard to track.
Whatever you do, map out your FULL plan, down to the last debt, and then stick to it. The consistency is the key to success here, and if you’re constantly changing your system, you’ll find it hard to track progress, and you may give up. Instead, by making the commitment to one plan, you’ll find yourself excited about seeing how far you’ve already come.
STEP 4: FOCUS ON ONE PRIMARY DEBT AT A TIME
Now you focus. Every month, in your budget, map out the minimum payments (we don’t want to pay penalties). Then figure out how much more money you can allot to debt repayment. And yes, this part may be difficult. You may have to suffer a bit – more ramen, fewer chicken wraps, or finding a way to carpool, or even picking up a second job for a while. It will be worth it, I promise.
All of that money for debt (again, minus minimum payments) goes to your primary debt (smallest balance, highest interest rate…or the one that just stresses you out the most!). Track your payments so you can see progress.
You can even call the debt-holder and try to negotiate the debt down so you can pay it off faster! This works well with medical bills, some private student loans, and any debts that you’ve had outstanding for a while.
STEP 5: AUTOMATE AND TRACK
Consistency is what turns a debt plan into real freedom. The easiest way to stay consistent is to automate everything you can.
Start by setting up automatic payments for all your minimums. Then, if your income allows, automate the extra payment toward your current focus debt. Treat it like a standing appointment and don’t cancel on yourself.
Automation removes temptation. You’re less likely to spend money impulsively when your payments are already handled. It also reduces stress because you’re not constantly juggling due dates or worrying about missed payments.
But don’t confuse automation with autopilot. You still need to check in regularly.
Once a week, do a “Money Class Review.” Look at your balances, confirm payments cleared, and record your updated totals.
STEP 6: CELEBRATE MILESTONES
Paying off debt is a long game, and long games need encouragement. Every balance you eliminate deserves recognition; not because of the money itself, but because of the discipline, patience, and purpose behind it.
When you pay off a debt, take a moment to mark the win.
- Cross it off your list.
- Update your tracker.
- Do something small but meaningful to celebrate – maybe a special dinner, a special coffee, or a donation to a cause that matters to you, or find a free event in town that you’ve always wanted to do.
These milestones matter because they reinforce progress. Without them, it’s easy to lose motivation halfway through. With them, you build a rhythm of achievement that keeps you moving forward.
If you’re part of a family or partnership, share the celebration. Let everyone cheer you on during your journey to be debt-free.
STEP 7: PREVENT NEW DEBT
The fastest way to lose momentum is to let new debt sneak in while you’re paying off the old. Progress only sticks if you protect it.
The emergency fund you saved will help with this, but it also means being intentional with every future purchase. Before you swipe a card or sign a loan agreement, pause and ask three questions:
- Do I truly need this right now?
- Can I pay for it in full within the month?
- Will this bring me closer to or farther from my financial goals?
If the answer doesn’t align with your purpose, wait. The goal isn’t to deprive yourself, but to prioritize – financial well-being has to come before auxiliary comforts.
Start setting up sinking funds for predictable expenses like holidays, car repairs, or school fees. Each small, regular deposit shields you from surprise costs that might otherwise land on a credit card.
Then, revisit your budget monthly. Life changes. Prices shift. A quick check keeps your plan realistic and flexible.
Debt freedom doesn’t happen overnight, but it always starts with one clear, confident decision. You now have a plan. Follow it step by step, and progress becomes inevitable.
Your next assignment:
- Open your notebook or spreadsheet.
- List your debts in full detail.
- Choose the repayment method that fits you best.
- Set one automatic payment today, even a small one, toward your focus debt.
That single act turns your plan into motion.
Remember, being debt-free isn’t the finish line. It’s the foundation for everything that comes next – financial stability, generosity, and purpose.
Start where you are. Build where you want to go.
And as always… manage your money better, and live your life on purpose