7 Habits That Will Help You Pay off Debt

American debt has been on the rise for the 22nd consecutive quarter. According to the New York Federal Reserve, household debt approached $14.15 trillion in the fourth quarter of 2019. The total is now $1.5 trillion higher, in nominal terms, than the previous peak of $12.68 trillion in the third quarter of 2008. Home, auto, student loans, and credit cards represent the biggest debt sectors in the U.S., with a majority of American people in some form of debt.

When you feel overwhelmed—take a breath. Debt is what allows us to leverage our time in return for cash to buy our first home, finance a business, or purchase a family car, and it isn't inherently bad. Some people are able to sprint toward paying off debts, but most take a longer route.

Below are seven habits to successfully pay off your debts without sacrificing your sanity.

Budget for Debt Payments

Writing a budget

The number-one mistake people make when trying to pay their debt down is not budgeting for monthly payments, the same as you do for utilities, food, and other necessities. Debt should be treated like any other bill.

It’s due every month and you face negative consequences for not paying it on time. If you want to pay extra toward your debt, it helps to have that money accounted for in your budget.

The easiest way to start is to use a zero-sum budgeting approach. This forces you to give every single dollar that you earn a “job.” If you make $3,000 per month, you need to figure out where every dollar is going.

Take a look at your current budget and see if you typically have any money left at the end of the month. If you don’t, rework your budget; if you do, then figure out exactly where those extra dollars have gone.

Including debt payments within your budget means you've set the money aside for every month, and you might want to take this a step further by enrolling in automatic payments (so you don't have to worry about missing a payment).

Think of Debt as a Marathon, Not a Sprint

Person running in the sunset

Approaching your debt with a sprint mindset is one of the easiest ways to cause debt fatigue. While some debt can be classified as an “emergency,” especially if it holds a double-digit interest rate, it’s more sustainable to take a confident, methodical approach to paying back a loan.

Firstly, pouring all your earnings into a debt is draining, both physically and emotionally. If you have a large sum to pay off, a sprinter's pace will likely be too grueling to sustain.

Secondly, some people prefer to take their time paying off low-interest debt because they believe they can get a better return elsewhere. While that may be true, if you’re using this argument, make sure you’re actually doing something with your money. It’s not going to get a better return sitting in the bank because your return when paying off debt is your interest rate.

If you follow an all-or-nothing approach, you can see very quickly that your life begins to revolve around your debt. Don’t let it make decisions for you. You can enjoy the financial fruits of your labor, in spite of your debt—so long as you go about it in a financially responsible way. This could mean having a separate travel savings fund, or a certain amount of fun-money set aside for each month (after your debt payment has been made).

Along these same lines, don't make any rash decisions like raiding your 401(k) to pay off your debt.

Don't Put Your Health in Jeopardy

Woman looking down
Getty Images 

A common piece of advice for paying off debt is to simply earn more money. If you can’t afford to pay extra on your debt right now, it's worthwhile to work extra hours, develop a side hustle, or look for a seasonal job.

While this advice is practical and helpful in most cases, you also run the risk of letting your debt enslave you.

Imagine that you’re so completely focused on becoming debt-free that you sacrifice every hour outside your regular job to earning more money. You establish a side hustle, you work 80-hour weeks, and you’re able to aggressively pay off your debt. You take every money-making opportunity that comes your way without thinking twice. That is, until you start to feel run down, as if you’re out of fuel and can’t remember the last time you had a break.

Becoming a workaholic is a habit and routine you create for yourself. You can’t say "no" to more money, and you don’t know how to stop.

Your sanity will eventually suffer, as will your personal relationships and the quality of your work at your day job and side hustle, alike. You will no longer find juggling them to be enjoyable, as they solidify themselves as a painful means to a debt-free end.

Don’t let this happen to you. If you choose to work more because you’d like to earn more to pay off your debt faster, go into it with boundaries. Don’t let clients (potential or otherwise) dictate your schedule.

Don’t marginalize your physical and mental wellbeing. In the U.S., medical costs can create their own interest-accruing debt, and this cruel irony is the last thing you need when attempting to pay down a loan at the cost of your health. Health issues that you ignore now will inevitably come back later, as expensive and dangerous as they've ever been.

There’s nothing more valuable than your time and health; debt is not worth working yourself to death.

Learn From Others

Learn from others who have paid off debt

If you find you’re lacking some inspiration or need a different outlook on debt, read stories from other people who are going through a similar situation.

Many times, being in debt feels isolating. You might feel like you did something wrong, like you deserve to be miserable and wallowing in self-pity. But reading other people’s stories can help reframe the issue.

You're certainly not alone in a global economy obsessed with borrowing money, so finding a helpful, supportive community can make a huge difference in your journey toward being debt-free.

Connect with like-minded people so you can bounce ideas off of them, confide in them, and gain partners in remaining accountable. Surrounding yourself with people who know exactly what you’re going through and can encourage you to feel optimistic about your situation.

Remember Your "Why"

Woman hiking in the mountains

No one enjoys being in debt. It’s an uncomfortable and necessary fact of life for most people and businesses, and it's natural to want the liberty of becoming debt-free.

Ruminate on why you chose to take the debt in the first place and write down your reflections. Boil this down into a mantra and repeat it whenever you have a rough day. Accept that some days you'll feel like the debt is inescapable and that you’ll never get out from underneath its weight.

In these moments, come back to your mantra—your “why”—and you’ll likely find renewed inspiration. Having a justification for any big goal in life will help you overcome the many challenges you’ll face while achieving it.

Stay Consistent and Forgive Yourself When Plans Fail

It's okay

One of the best things you can do to succeed at paying off your debt is to make a plan. If you don’t have a strategy for paying off debt, you’re not going to make as much progress as you would if you had a roadmap to follow.

You can choose to pay a debt off using the avalanche or snowball method (or a combination of the two) but give yourself a buffer if things don’t go as planned.

You might have an unexpected expense you have to deal with one month which causes you to make the minimum payment on your debt, and that’s okay. Having a plan matters, but you don’t need to follow it under every circumstance.

Establish an Emergency Fund

Keep an emergency fund when paying off debt

Unexpected expenses are the reason to diligently cultivate your emergency fund.

Having extra funds set aside means you have less of a chance of ending up in more debt than you started with.

While many emergency expenses can be anticipated, the truth is, most people don’t think about them until it’s too late. You don’t need a gigantic emergency fund, however budgeting for various savings accounts can help you become debt-free with fewer bumps in the road, and help you stay debt-free in the future.

Developing these simple habits will lead you to debt freedom sooner rather than later. You don't have to drive yourself crazy by putting every penny you earn toward your debt, but you do need a plan, preferably one that works for your personal liberty and sanity, rather than against it.