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Thursday, September 21, 2023

How to pay off debt

How to pay off debt

Piggy bank clock calculator debt

Key takeaways 

Carrying a lot of debt can be stressful, but remember that  not all debt is bad debt. By making a realistic and efficient repayment plan, you can get out from under and save and pay for what matters most.


The best strategy for paying off debt depends on what type of debt you have

According to Empower's recent Wealth and Wellness Index, money-related goals are overtaking traditional lifestyle goals in 2022. In this recent survey, 37% of Americans say paying off personal debt is their number priority this year. That’s more than those who say losing weight (28%), buying a house (14%) or getting a new job (11%).1

The strong focus on financial health may not come as a huge surprise. In research conducted by the Harris Poll for Empower and Personal Capital: 

  • More than three-quarters of Americans said their financial well-being affects their physical and mental health.
  • More than half of those polled connect financial well-being with their overall happiness.
  • Sixty-nine percent of Americans associate being debt-free with financial health.2

Because debt can have an impact on your financial health and total well-being, it shouldn’t be ignored. Here are some tips for paying off two common types of debt:

How to pay off student loans

Student loan debt can be a substantial challenge: The average student loan debt of a person graduating from college in 2021 was $36,900.3 If you’re struggling to keep up with your student loans, or want to figure out , consider the following options:

  • Government repayment plans. If you have federal student loans, income-based repayment plans offer an extended repayment period of up to 25 years, with monthly payments based on a percentage of your discretionary income.
  • Consolidation. If you’re making multiple student loan payments every month, consolidating them can bring all of them under one roof with one fixed interest rate — potentially making it easier for you to stay on top of your payments.
  • Refinancing. Refinancing can provide a simple way to lower your interest rate or monthly payments. But it also turns federal loans into private loans, making you ineligible for income-based repayment plans in the future.
A man sits at a table with calculator and financial documents, holding credit card

How to pay off credit card debt

With its high interest rates, credit card debt can be particularly difficult to leave behind. That’s an issue given that the average American household carries over $5,000 in credit card debt.4 If your balance seems to grow every month,  it’s time to make a plan:

  • Start budgeting. Look at your monthly income and expenses and figure out where you could cut costs. That extra money can help you pay off your debt faster.
  • Focus your payments. If you have balances on multiple credit cards, choose one and work to pay it down as quickly as possible. Some people focus on the card with the highest interest rate. For others, paying off the card with the smallest balance can provide a sense of accomplishment — and the momentum to move on to the next.
  • Stick with it. Once you pay off one card, take the money you’d been using for that bill and put it toward the next card on your list.

Snowball and Avalanche debt payoff methods


Good debt vs. bad debt

Carrying a lot of debt can be stressful, but remember that not all debt is bad debt. Good debt, such as a home mortgage, helps build your credit while getting you closer to a long-term goal. But debt that grows and grows can compromise your financial well-being over time.

By making a realistic and efficient repayment plan, you can get out from under those bad debts — so you can save and pay for what matters most.

1 Empower and Personal Capital, “Wealth & Wellness Index,” January 2022

Methodology: This survey was conducted by The Harris Poll on behalf of Empower Retirement and Personal Capital from October 29 to November 3, 2021. We surveyed 2,006 U.S. citizens ages 18+.

2 Empower and Personal Capital, “The Journey Toward Financial Freedom,” July 2021

Methodology: This survey was conducted by The Harris Poll on behalf of Empower Retirement and Personal Capital from March 23 to April 5, 2021. We surveyed 2,005 people, all of whom were 18+ and living in the US.

3, Hanson, Melanie, “Average Student Loan Debt by Year,” August 2021.

4, Fay, Bill, “Key Figures Behind America’s Consumer Debt,” May 2021.

Personal Capital is an affiliate of Empower Retirement. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Compensation for freelance contributions not to exceed $1,250. Third party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Empower of the contents on such third party websites. Certain sections of this blog may contain forward-looking statements that are based on our reasonable expectations, estimates, projections and assumptions. Past performance is not a guarantee of future return, nor is it indicative of future performance. Investing involves risk. The value of your investment will fluctuate and you may lose money. Advisory services are provided for a fee by either Personal Capital Advisors Corporation ("PCAC") or Empower Advisory Group, LLC (“EAG”) depending on your specific investment advisory services agreement. Both PCAC and EAG are registered investment advisers with the Securities and Exchange Commission (“SEC”) and subsidiaries of Empower Annuity Insurance Company of America. Registration does not imply a certain level of skill or training. © 2023 Empower Annuity Insurance Company of America. All rights reserved. “EMPOWER” and all associated logos, and product names are trademarks of Empower Annuity Insurance Company of America.