How to Break Up With High-Interest Debt: A Step-by-Step Guide

Debt is super easy to fall into, especially when we’re handed credit cards at 18, told to spend, but never taught the true cost of unpaid balances. The reality is, if you don’t pay back what you owe, it will start to accrue large amounts of interest, making it harder and harder to climb out of debt later on.

Not All Debt Is Bad

Some debt can be good - like mortgages and student loans - because they typically offer a good return on investment. But the kind of debt we want to eliminate is anything with an interest rate over 7% - think credit cards, personal loans and buy now, pay later accounts.

Start by Identifying Your "Why"

The first step in getting out of debt is understanding why you want to do it. Without a clear reason, staying motivated can be tough.

Maybe your debt is causing you constant stress and you want to pay it off to feel calmer day to day❓

Perhaps you’ve realised you’re paying way more for items than they’re worth due to interest and don't want to do that anymore❓

Or maybe you're aiming for financial independence and you know you need to get out of debt to do this❓

It may be one of the above or anything else, whatever your reason, defining your “why” is crucial. You will need to hang onto this reason in tough moments so you stay on course as much as possible until your debt is paid off.

Create a Debt Repayment Plan

Next, it’s time to take inventory.

List out all your debts - credit cards, loans, after pays, etc. - and note the balance, minimum repayments and interest rate for each one. Then, choose a repayment strategy that works best for you.

Two Popular Debt Repayment Methods:

1. Snowball Method:
   List your debts from smallest to largest. Pay off the smallest debt first, then move on to the next. This method is great if you have several types of debt and want to see progress quickly by closing accounts as you go.

2. Avalanche Method:
   Prioritise paying off the debt with the highest interest rate first. This method is effective because it minimises the total amount of interest you’ll pay over time, saving you money in the long run.

Neither method is inherently better—it’s all about what feels right for you. Do you need to see the number of bills shrinking to stay motivated? Or are you more driven by reducing your overall balance?

Address Your Spending Habits

Lastly, it’s essential to examine your spending habits. You need to identify areas where you can cut costs each month to avoid overspending and keep yourself from falling back into the debt cycle. Setting up a monthly spending limit and automating your bills to go out on payday is crucial.

Need Help? Let's Work Together!

A Money Insight session with me will give you a clear overview of your spending habits and we’ll come up with 1-3 strategies to start tackling your debt immediately.

You can book a Money Insight session here, or if you have questions before booking, schedule a Q&A session here to see if we’re a good fit.