Please note: The video and transcript on this page reflect the debt payoff strategies shared in "New Year, No Debt: Your Debt Payoff Game Plan." The same strategies were shared under the title "How to Pay Off Debt - Top 2 Strategies." The following transcript is from a Copper State Credit Union live virtual event and has been modified for readability. Timestamps that coordinate with the video are included at the beginning of each section for your convenience.

For more information on the strategies we discuss below, Get Our Debt Relief Bundle and Say Cheers to a Debt Free Future! This includes debt deletion worksheets for each of the strategies below, as well as a calculator to help you determine your Debt Directable Dollars.


How To Pay Off Debt - Top 2 Strategies


Introduction (6:05)


Thank you everyone for joining us in our virtual event. We really hope to continue offering these live virtual events with you monthly, and we hope that you continue to join us. For those of you who are new here, I want to introduce you to our credit union. We are a local Arizona credit union built from the merger of two equally thriving credit unions back in 2019 - Deer Valley Credit Union and Canyon State Credit Union. We came together to become stronger together. Membership with Copper State Credit Union, with all of its benefits, is now open to most Arizona residents. If you live, work or worship in any of the following counties, Maricopa, Gila, Navajo, Pima, Pinal, or Yavapai, you are eligible for membership with Copper State Credit Union.

We currently have seven branch locations and over 40,000 members who trust us to do their banking. We are making financial wellness a priority (find out if you need a financial assessment!). You can see that our values are family, empowerment, discovery and excitement. We care about our members and empowering you to achieve financial wellness. That's one of the reasons why I am here today. That's our credit union and I want to start with our goal today. Our goal today is that you walk away with two different strategies for paying off debt. Whether you have one debt or multiple, these are two very specific strategies that you can implement at home on your own, for free.

Another resource of ours, On Demand Webinar: Smart Debt Consolidation Plan, is accessible to you as well!



The Secret To Debt-Payoff Success (10:24)


Before we start talking about those, there's a secret to success. I know that sounds like such a gimmick, but really you have to know this in order to be successful with your debt payoff strategy. Here it is. The secret to debt pay off success is stop creating new debt. Now, I know that that is a little bit easier said than done. We see it all the time. What happens is you're trying to pay off your current debt, but in so doing, you're creating new debt somewhere else or on the same debt, and it leads to this cycle that I'm going to share with you. Somebody is saying, I'm desperate to get this debt paid off and maybe they get a check in the mail or their payroll comes in and they say, okay, I'm going to pay way above the minimum payment on this debt. I'm going to pay several hundred dollars extra. I'm really going to get ahead of it this month. This is when it's going to change. They put every spare penny they have onto that debt.

Well, what happens, and this can be weeks later, this can be months later, but eventually because it's such a big task that's created, what happens is they don't have enough cash left for necessities. What happens if you don't have enough cash? You have to then have a new loan or put it on a different loan or pay for those necessities with another loan or debt. We see this all the time. If you want to be successful in paying off a $3,000 credit card debt, for example, you must be able to sustain daily, monthly, yearly expenses without creating more debt on another credit card or anywhere else. Now that I've explained this, I want to give you a couple of action steps.

How do you get out of this payoff attempt cycle? Well, you want to make sure you've created a budget, and if you do not have a budget already, we have some resources to share with you. Last month's virtual event was easy and empowered budgeting in four simple steps. We actually took an hour and we went through a comprehensive guide on how to set up a personal or family budget for yourself. That recording and transcript would be a great place to start. (See links below!)

Now, the important thing about creating a budget is specifically determining this number that I am going to call our Debt Directed Dollars.  How much money you can put towards debt each month while still taking care of your necessities, your basic savings and spending. You can cover groceries. You can take care of all those bills that you need in order to live day to day, week to week, month to month. . We're going to refer to that number, your debt directed dollars number, several times as we go through today while talking about our strategies. That's the number you have to start with in order to implement these strategies. 

Don't panic if you don't have a budget at all. Like I mentioned, we do have some resources to share that will help. All of these resources are free. Like I said, we care about our member families. We care about your financial wellness and you feeling empowered to meet your financial goals, so these are completely free.

If that's where you need to start, awesome! It's a great first step, but don't sign off. That doesn't mean that this information won't be helpful for you at all. It will. You'll get valuable knowledge today, and once you know that debt directed dollars number, you'll be able to implement one of our strategies.


Click for your free budgeting eBook download



Debt Payoff Strategy 1 - Fixed Payment Method (16:08)

The first strategy that I'm going to share with you today is called the fixed payment method. Now that you know the secret to debt payoff, stop creating new debt, we can talk about how we are going to pay off the debt. This strategy is pretty easy to explain. It's pretty easy to understand and pretty easy to implement, which is awesome. If you are someone who came on and you're like, man, I don't want some complicated thing. I just want like a simple way to make a little bit faster progress on my debt. This strategy might be for you, but of course, hang around, hear about both of them. Then you can make your decision from there.

In order to understand the fixed payment method strategy, first we need to talk about what a minimum payment is. Maybe you're very familiar with that. If not, I'm just going to go through a little quick summary. A minimum payment is something that's determined by the lender or whoever has your loan. If it's a credit card, the credit card company is the one determining your minimum payment, and the way it's calculated is by a percentage of your balance. They have to include the fees and stuff in there as well. It's not an exact science, but just knowing that that minimum payment is based on a percentage of your outstanding balance. That minimum payment, if you're not adding any debt to that, is going to change a little bit from month to month.

(Can't make your credit card minimum payment? Read our article for help!)

Look at fixed payment as the other option, so instead of paying the minimum payment due, when you get that statement in the mail and it says minimum payment due, instead of paying that amount, the other option strategy I'm going to offer to you is to do a fixed payment. You get to determine what this fixed payment is, which is really nice. It puts you in control of the situation. As I said, the minimum payment from the lender is going to change monthly because it's this percentage, whereas the fixed payment, due to its name, is the same amount every month. Again, easier to remember, easier to budget for, in my opinion, because it's just the same dollar amount every month. To kind of compare payoff times and interest between these two, the minimum payment, it's going to lead to a longer payoff time. Yes, it's convenient to be able to just make that smaller payment.

I remember when I got my first credit card and I went out and went shopping or something. I don't remember. I put $600 or so on the credit card. I got the bill and I remember being surprised because I thought I would have to pay the entire $600. I was pleasantly surprised by the fact that I only had to pay $38 or whatever it was. I was excited. I thought, wow, this is a great deal. I'm going to do this every month, but the reality is if I were to do the minimum payment only, it's going to have longer payoff times. If you do a fixed payment, it's going to decrease that payoff time significantly. We're going to talk about an example of this in just a moment.

On the fixed payment method, it's going to decrease the interest that you're paying pretty significantly, so that's a nice benefit, but really to understand the fixed payment method, it's helpful to look at an example. Before I share any numbers and comparisons with you, I do have a question. I'm going to put up another poll here right now and let's see. Okay. If this poll pops up for you, I would love for you to share your guess; $3,000 balance on a credit card. Let's say that the rate, the interest rate or the annual percentage rate they're paying is about 18%. How long do you think it would take this individual to pay off their credit card balance if they paid minimum payments only? I see a few guesses coming in. Go ahead and take a moment to share in the poll if you have a guess.

Well, we don't have anyone who said one year. The options for those of you that are just calling in via phone  were one year, 4 years, 14 years and 18 years. All right, thank you for sharing. Let's take a look. For a minimum payment, $3,000 balance without adding any more to that balance and having an 18% APR, here's what the minimum payment would look like. I just did an example month of June, like starting in June as the first month. In June, on that type of balance, approximately the minimum payment is going to be about $75. The percentage usually runs about two to two and a half percent of the balance, just for your reference. This is what it would look like, and notice how each month it decreases by a little bit. Why do you think that is? Well, because your balance is decreasing a little bit each month. As the balance decreases a little bit, you pay a little bit less than the minimum because it's calculated by a percentage.

For those of you that said 18 years, you are correct. It would take 18 years to pay off this credit card. Just that $3,000 balance. If you never spent another penny on that credit card, it would take 18 years. The interest you would pay is almost $4,000 on top of the balance of the money you actually borrowed from them. Here's an illustration of what a fixed payment will do for you. I kept the minimum payment from June and I just said, you know what? Why don't we just pay $75 a month? Let's fix that payment in place. If I could afford $75 in June, when that was the minimum, then I can afford $75 in July and August and September. If I do that and we keep that up over the course of the loan payment, look at the decrease in payoff time and in interest paid. Huge, right? We've cut 13 years off of the payoff time and over $2,000 just by keeping your payment at a fixed number each month, instead of paying what they say the minimum is.

I love this tip. It's so easy to implement. That's one of the reasons why I really like it. It's not something you have to do a bunch of math for. It's pretty straightforward. Action steps for this, if you like the idea of doing a fixed payment method, make sure you know your Debt Directed Dollars number. It's important to have a budget and figure out how much you can put towards all your debt so that you don't go over that number. If you go over that number, you're not going to have enough money left for groceries and gasoline and all the things you need every month and you'll go into more debt.

Remember, like we talked about at the beginning. That Debt Directed Dollars number is key here. Gather all of your loan statements, grab our free debt deletion worksheet and it will actually walk you through the fixed payment method that I just talked about, and it'll show you what to do for your own personal debt situation. You'll get that worksheet for free!

The other tip or sort of action step for this is to make your payments automatic, if you can. What I mean by that is go to your credit card website or your loan provider's website, set up automatic payments. Hint: set it up on the day you get paid or the day your money is coming into your household so that that payment's made immediately and you don't have time to spend it on other stuff. If you can make it automatic, if your budget can handle that, it's a great way to kind of forget about it a little bit and just let that fixed payment method do its magical work.


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Debt Payoff Strategy 2 - Roll Up Payment Method (26:30)


I'm going to move on to our debt payoff strategy number two. Another very exciting option. It's called the roll up payment method. Here's how it works. Basic definition, every time a debt is paid off, you roll up that monthly payment to the next debt. Your debt directed dollars, again, are going to be super important because you're utilizing every single penny of those. Let's talk about this in a little more detail because this one's a little bit more complex, but don't worry. It's definitely doable. It's worth it.

What you would do for the roll up payment method is you would gather all your statements, make a list of all your debts, just like you would for the other one, but you're going to choose what's called a focus debt and you can either choose the lowest balance or the highest interest. That's personal preference. If you choose the lowest balance as your first focus debt, you're going to see progress a lot faster. If you're someone that needs to see your progress in order to stay motivated, you want to go with the lowest balance first. If you're more of a mathematical, logical thinker, you might want to start with the highest interest loan first, because you are going to save a little bit more by putting more of your cash on the higher interest loans first, but regardless, no matter what you choose, you're still going to make a huge impact on your debt load no matter what you choose as your focus debt.

You've picked your focus debt from all the ones you have, and you're going to pay the minimum on every single debt other than the focus debt. If I have five debts, I'm paying the minimum payment only on four of those debts and on the fifth one I'm going to put the rest of my debt directed dollars. Let's look at an example. Here's Jason. He calculated his debt directed dollars available as $500 a month. That's what he has available to put towards every single debt that he has. He decides to go with the lowest balance as his first focus debt. This little chart on the side shows you all of the debts that Jason has.

He decides his first focus debt is going to be his mom because that's the lowest balance. He wants to see his progress go kind of quickly. What he will do is add up the minimum payment for the other four debts. Take a look over here at the minimum payment column on his debt chart, and if you add up those four amounts, it's $450. He has to make those minimums, right? He's got to make those minimum payments, but what we can do is some simple math, take that total debt directed dollars number that he has available for debt, subtract the monthly minimums for the other four, and then what is left, that $50, goes towards his focus debt or his mom until it's paid off. Good news for Jason; that's only going to take two months. All right. Take a look at this little graph. Let's say he started this month in November. He's going to pay his mom $50 a month. She's going to be paid off in two months. The rest of those loans are just getting a minimum payment.

Now, once that happens, once that first one is paid off, you're going to really start to see some interesting things happen. I cropped this to just show you the first three columns because it can be kind of overwhelming, but what happened after mom is paid off is we are going to roll up that $50 that was going towards mom, and we're going to move it over to the dentist loan or his next focus debt. You can see that he was making the minimum on the dentist loan, which was $75. He adds the $50 that was going to mom that he doesn't have to do anymore because it's paid off, and now he's putting $125 towards the dentist loan. A few more months go by and then that one's paid off. Guess what happens next? You roll up that entire $125 over to the third focus debt. Now Macy's, we've been paying the minimum all these months, and now we're adding that roll up from mom and the dentist, so $125 total, in addition to the minimum, Macy's is getting $175 a month.

You can see how this process kind of snowballs; gets bigger and bigger. If Jason had just paid the minimums on everything, it would have taken him four or five years to pay off all of these, but with this method, he is able to shave off a ton of time. Three of the debts are paid off in the first year. All three, mom, dentist, and Macy's completely done in one year, and the last two, his car and his computer loan, only take six more months. They're the biggest ones, but they go so fast because he's putting so much of his debt directed dollars onto those last two. He's putting $450 a month or $500. That's a lot of money. That's why those last two debts go so fast. It's a really, really encouraging strategy to use because you get to see the effect over time of rolling those payments up.

The last little tool I want to share is called power pay.  Utah State University set this up and you know that calendar that I showed on the previous slide that had the month and the debt? Well, if you plug all your information in there, it will show you how quickly you'll be able to pay off. Our debt deletion worksheet really helps you come up with a plan and walks you through step by step, but once it's all done, you can plug it into power pay and it will give you a really nice calendar to show you what kind of progress you're going to make.

Which of these strategies is better? They're both better. If you're trying to pay off debt,  either one of these are going to make progress and they're going to make faster progress than those minimum payments. Even the tiniest change. Choose whatever fits you best, and I hope one of these methods really spoke to you and you feel empowered to give it a try.

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This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.