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How to Pay Off Debt

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Transcript of the video:

Debt is one of those things that no one wants to talk about--but we need to, so we can help

you manage it wisely.

The first thing you'll need to do is arrange your nondeductible debt in order of highest

to lowest interest rate.

The account with the highest interest is the one you should focus on paying off first.

Once the highest interest debt account is paid off, take the money you were paying to

that account per month and add that to the monthly minimum for account number two.

Pay this to account number two, until that account is paid off.

Follow this same strategy for the rest of the accounts on your list.

This first approach is called the "avalanche approach".

Over all, you may save the most money this way, but paying off a larger balance to start

can be intimidating.

Some people find it emotionally satisfying to pay off accounts quickly, so they start

with the smallest balance first, rather than the account with the highest interest rate.

This approach is sometimes referred to as a "debt snowball" strategy.

It can be more motivating, but you may wind up paying more interest this way.

Regardless of the strategy you use, make sure you make the minimum required payments for

all of your debts.

By paying more than the minimum, your debt payoff will increase more quickly.

You can follow the same approach for other deductible debts like most mortgages and student

loans.

To learn more about how to take control of your financial future, check out the other

videos in our Finance 101 series.
 

On this episode of Personal Finance 101, we take a look at Schwab’s suggestions for how to manage your debt wisely.

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This information on this website is for educational purposes only, and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation funded by The Charles Schwab Corporation. It is not part of Charles Schwab & Co., Inc. or its parent company, The Charles Schwab Corporation.

© 2025 Charles Schwab & Co., Inc. ("Schwab"). All rights reserved. Member SIPC.

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