How to Pay Off Debt in a Year

1. Assess and Prioritize Your Debt

As a first step, get an overview of the state of your debts. In a table like the one below, list each type of debt you want to pay off, plus its current balance, minimum payment and interest rate.

You can also list your likely payoff date if you keep paying according to your current repayment plan, and the total amount in interest you’ll pay. That might help motivate you to focus on debt payoff.

Once you’ve listed all your debts in one place, you can prioritize which to pay off first (more on that below). It may not be realistic to pay off certain high loan balances, like a mortgage, in a year. Plus, it’s less urgent to get rid of them if their interest rates are comparatively low.

Learn more >> How Can I Find All My Debt?

2. Create a Budget

Next, establish a budget. A budget gives you insight into your spending and helps you identify how much money you have to put toward debt. Here are five steps for setting up a budget.

1. Start with your monthly take-home income. If your income remains the same each month, find this figure by checking your most recent paychecks from the prior month. If your income changes from month to month, look at your net income for the past three to six months and calculate the average monthly total.
2. Examine your expenses. Next, check your bank and credit card statements or transaction history for the past three to six months. Identify the amount you spend on a monthly basis.
3. Categorize your expenses. Then, put your expenses into categories. They can be broad, like fixed monthly expenses and variable expenses, or narrow, such as rent, utilities, insurance and the like. It’s likely most helpful to break down your expenses the latter way, and by including discretionary categories like personal care, dining out and travel, so you can notice spending patterns. Your bank or credit card issuer may do this automatically in your online account.
4. Establish financial goals. Decide how much money you’re willing to set aside each month to wipe out debt. Then set a budget for the amount you’ll spend in other categories, making sure it’s within your take-home income and also allows you to save for emergencies and retirement.
5. Monitor your spending. To stick to your plan, track your spending. You can use a budgeting app, a spreadsheet or simply regularly check your bank and credit card accounts online. Set aside a certain time each week to review and categorize your spending.

3. Choose a Debt Repayment Plan

At this point, you’ll have a total amount in mind that you can afford to put toward debt each month. Now you can consider which debt payoff method to choose. Two common options are the debt avalanche and debt snowball methods. Here’s how they compare.

Debt Avalanche Method

The debt avalanche method aims to erase your most expensive debt first. Start by making the minimum payments on all your debt accounts, then put as much extra money as you can afford toward the one with the highest interest rate. Once that debt is paid off, you’ll do the same with the debt with the next-highest interest rate (including the amount you’d been putting toward the first debt), and so on.

Even if you can’t pay off all of these debts in a year, initially wiping out your high-interest balances helps you save money and pay more toward other debts. One drawback: It might be difficult to see progress if your highest-interest accounts also have the highest balances.

Example: Let’s say you have a $19,000 personal loan with a 12% interest rate, a $12,000 federal student loan with a 5.5% interest rate and a $6,500 credit card balance with a 23% rate. Using the debt avalanche method, you’d pay off your credit card balance first, followed by your personal loan and finally your student loan.

Debt Snowball Method

The debt snowball method takes a different approach: You’ll focus first on the debt with the smallest balance, regardless of the interest rate. Just like the avalanche method, you’ll make only the minimum monthly payment on all accounts, and with extra funds, you’ll make bigger payments to the account with the lowest balance. After that debt is paid off, you’ll apply the snowball method to the debt with the next-lowest balance until all of your debts are gone.

Example: With the same accounts as in the example above, the debt snowball method would still mean paying off the credit card balance first, but you’d then pay off the student loan followed by the personal loan.

When deciding which to pick, go with the debt avalanche method if minimizing the interest you pay is your top priority. But if you think you’ll be more motivated by quickly paying off small accounts, choose the debt snowball method.

4. Cut Down on Spending

To boost the amount you’re putting toward debt, try these strategies to reduce expenses:

1. Limit meals out. If you typically spend a lot on restaurant meals or takeout, limit it to an amount that will save money but doesn’t feel massively restrictive. Depending on your current spending, you might cut down restaurant meals to once a week or once a month.
2. Stick to a shopping list. Building a grocery shopping list around a weekly meal plan can yield savings. You’ll buy only what you need and reduce food waste.
3. Go generic. Buy generic or store-brand products, which tend to cost less than their brand-name counterparts while maintaining quality.
4. Shop around for insurance. Obtaining multiple quotes for auto, homeowners or renters insurance coverage lets you compare prices and potentially save money on premiums.
5. Streamline your entertainment options. If you pay for cable TV along with streaming services, consider slimming down your monthly expenses and keeping only the services you most watch. If the service offers it, you could also create a family account to share with family members who live with you and pay less per month.
6. Cancel subscriptions. Comb through your subscriptions and memberships, and see which ones you won’t miss by either canceling or downgrading them.

5. Increase Your Income

One way to supercharge your payoff plan is to increase your income. Here are four ways to do it:

1. Search for a temporary job. Try making extra money through a side hustle as a tutor, babysitter, pet sitter or dog walker. Online platforms can make it easy to get started and work when your schedule allows.
2. Take on freelance work. If you have a talent for an in-demand skill like writing, social media marketing, programming or web design, you can take on part-time freelance clients in addition to your primary job.
3. Sell items online. Do you have unused clothes or electronics around the house? Convert those items into cash through online platforms like Facebook Marketplace and Poshmark.
4. Rent out a room. If you’ve got a room to spare, you can turn it into a moneymaker by renting it out, either long-term or short-term through a vacation rental platform. For example, the average U.S. Airbnb host earned about $14,000 in extra income in 2022, according to research from Airbnb.

6. Consider Alternative Options for Paying Off Debt

In addition to choosing a debt repayment strategy and slashing your spending, you may be able to lighten your debt load with these alternatives.

Ask for a Lower Credit Card Interest Rate

Contact your credit card issuer directly and negotiate a lower interest rate. Even a drop from 19% to 18% may help you pay off debt faster. If the credit card issuer declines your initial request, try again in several months—especially if your credit score has improved.

Look Into a Debt Consolidation Loan

A debt consolidation loan is designed to pay off higher-interest debt, typically credit card debt, through a lower-interest personal loan from a new lender. In August 2024, the average national interest rate for a 24-month personal loan, such as a debt consolidation loan, was 12.33%, according to the Federal Reserve. In contrast, the average interest rate for a credit card that charges interest was 23.37%. One drawback of a debt consolidation loan: You typically need a credit score of at least 670 to qualify for a competitive interest rate.

Learn more >> What Is a Debt Consolidation Loan?

Explore a Balance Transfer Credit Card

A balance transfer credit card with a 0% introductory APR offer can help you pay off a higher-interest balance from another credit card. But to make this work, you must commit to paying off the transfer balance before the 0% interest period ends. Also, you typically must have good or excellent credit to qualify for a balance transfer offer.

Learn more >> What Is a Balance Transfer and Is it Worth it?

The Bottom Line

While paying off debt, it’s crucial to keep on top of your credit so you can take advantage of options, like a balance transfer, that can bring you closer to your goals. You can get your credit report and score through Experian for free, and free credit monitoring can help ensure you’re headed down a smooth path toward becoming debt-free.