Lesson 3 of 3 · 2 minute read
Paying off more than one debt
Stay current on minimums, pick an order, and get free help if you need it.
Start with the minimums
Pay at least the Minimum paymentThe smallest amount you can pay on a bill, like a credit card, without being charged a late fee.More in the glossary on every debt, every month. Missing one can mean late fees, and it can hurt your Credit scoreA three-digit number that shows lenders how likely you are to pay back money you borrow.More in the glossary.
Focus on one debt at a time
After the minimums, put any extra money toward just one debt. When that debt is paid off, add its whole payment to the next one. There are two popular ways to pick the order:
- Avalanche: Pay the highest APRAnnual percentage rate. The yearly cost of borrowing money, including interest and some fees, shown as a percent.More in the glossary first. You pay the least InterestThe price of borrowing money. You pay interest when you borrow, and you can earn interest when you save.More in the glossary overall. (See Debt avalanchePaying off debts by putting extra money toward the one with the highest interest rate first. It saves the most money.More in the glossary.)
- Snowball: Pay the smallest balance first. You pay off a whole debt sooner, and that quick win can keep you going. (See Debt snowballPaying off debts by putting extra money toward the smallest balance first. Quick wins can help you keep going.More in the glossary.)
Both work. The best method is the one you’ll stick with.
Keep the debt from growing
- Try not to add new charges to a card while you’re paying it down.
- Set reminders for your due dates. If you use autopay, make sure the money will be in your account so you don’t get an Overdraft feeA fee your bank may charge when you spend more than what's in your account and the bank covers the difference.More in the glossary.
If you can’t make the minimums
- Call your lenders. Ask if they have a hardship program. Some lenders will lower your payment or interest rate for a while.
- For medical bills, ask the hospital or doctor’s office about financial assistance or a payment plan.
- Talk with a nonprofit credit counselor. They can go over your budget and debts with you, for free or at low cost.
- Be careful with “debt relief” companies. Be wary of any company that asks for money before it has done anything for you, or that promises to make your debt disappear.
Pay at least the Minimum paymentThe smallest amount you can pay on a bill, like a credit card, without being charged a late fee.More in the glossary on every debt, every month. Missing one can mean late fees and a lower credit score.
Put any extra money toward one debt at a time. When it is paid off, move that whole payment to the next debt.
The Debt avalanchePaying off debts by putting extra money toward the one with the highest interest rate first. It saves the most money.More in the glossary way pays the highest APR first, so you pay the least interest. The Debt snowballPaying off debts by putting extra money toward the smallest balance first. Quick wins can help you keep going.More in the glossary way pays the smallest balance first, for a quick win.
Both ways work. The best way is the one you will stick with.
Can't make the minimums? Call your lenders or a nonprofit credit counselor. Be careful with companies that want money before they help you.