Debt doesn’t have to be something you live with forever. Take action to tackle your outstanding balances. Here’s how to pay off $5,000 in credit card debt, in five easy steps.
Step 1: Check Balances and Interest Rates
Before you do anything, make sure you know what kind of debt you’re actually dealing with. Gather all of your credit card and loan statements and check the outstanding balance of each. Then check each card or loan’s interest rate.
Make two lists of all your accounts: biggest balance to smallest balance and highest interest rate to lowest interest rate.
Step 2: Prioritize Debts
In order to figure out how to pay off $5,000 in debt (or more or less, depending on your totals), you need to prioritize multiple balances. You have two main options.
- Pay off the smallest balance first. Called the debt snowball method, paying off the smallest balance first and then moving to the next smallest balance gives you a little bit of mental momentum as you start to cross off debts entirely. Of course, you must continue to make minimum payments on all your other balances.
- Pay off the debt with the highest interest rate first. This method is called the debt avalanche method. It prioritizes the account with the highest interest rate, because that debt will cost you more over time.
There’s no right or wrong choice. Pick the option that drives you and stick with it.
Step 3: Make a Budget
Once you know which debts to focus on, make a budget. Figure out how much you spend each month compared to how much you earn, then find realistic ways to reduce your spending. Do you eat lunch out every day? Start making yourself a sandwich or taking a can of soup to work. Do you subscribe to several streaming video services? Cancel all but one.
Step 4: Put Extra Cash Toward Debt
Anytime you make any money beyond your usual paycheck, put it directly toward your debt priorities. If you get a raise, pledge it to paying down debt. If you start a side hustle, use that extra income to pay down debt. If your grandmother gives you a birthday check, instead of treating yourself to a shopping spree — well — you know the drill.
If you put all your extra income toward your debt, you’ll be down $5,000 in no time.
Step 5: Create and Celebrate Goals
As your debt begins to fall and you get closer to your goal, it’s important to stay motivated. Celebrate when you pay off your first $500 with a small, budget-friendly treat for yourself (something like a movie rental, not a new pair of shoes).
Tiny rewards can help you stay on track and successfully vanish your debt.