Capital InsightsFinancial Planning

Slaying the Beast: Tips for Paying off Debt in a High-Interest-Rate Environment

Inflation has been a hot topic in finance for more than a year. The Federal Reserve has steadily increased interest rates in an effort to slow the rising price of goods and services. You likely have felt the impact of their strategy across your budget— from groceries to airfare, electricity to housing, no line-item has been left untouched.

Inflation’s suppressive influence on purchasing power means that your dollar stretches less than in recent years, and you may find yourself tempted to turn to credit and loans to bridge the gap.

However, now more than ever, you’ll benefit from resisting the siren’s call of additional debt at high, variable rates and recommitting (or committing for the first time) to paying off as much of your debt as possible.

What’s the Damage

First things first: assess your total level of non-mortgage debt. Ignorance is certainly not bliss in this area, so take advantage of one of the many free debt calculators available online to help get a handle on your overall debt picture. The longer you avoid tallying up what you owe, the more challenging it will be to clear your debts.

Set aside some time for this step when you are starting from a calm, reasonably unemotional place. Berating yourself for that credit card-funded shopping spree 6 months ago isn’t going to lower the balance, so try to focus that energy on gradually improving your financial behaviors going forward instead.

Choose Your Weapon

Once you have aggregated the details of amounts owed and their respective interest rates, it’s time to pick a plan for repayment. Two common approaches are Snowball and Avalanche.

  • Snowball

    • Organize your accounts according to amount owed, smallest to largest.
    • Shift your payments to the minimum required amounts for all accounts except for the smallest.
    • Pay as much as you can reasonably afford towards the account with the smallest balance until it is completely paid off.
    • As each account is paid off, move on to the next-smallest balance.
    • Repeat!
  • Avalanche

    • Organize your accounts according to the interest rate charged, highest to lowest.
    • Shift your payments to the minimum required amounts for all accounts except for the one with the highest interest rate.
    • Pay as much as you can reasonably afford towards the account with the highest interest rate until it is completely paid off.
    • As each account is paid off, move on to the next-highest interest rate.
    • Repeat!

Both methods are perfectly valid approaches. If you are motivated by seeing the number of open accounts reduced more quickly, then Snowballing might be for you. However, if you’re looking for the most efficient use of your dollars, an Avalanche plan has the benefit of minimizing the amount of interest you pay as you work your way through the various balances.

Stock Your Utility Belt

After you’ve picked your repayment approach, review your budget to determine how much you can allocate to payments each month. There are a wide range of budgeting methods to explore, including zero-based, the envelope system, and the 50/30/20 rule, to name a few. Pick one that appeals to your individual strengths and that will be sustainable for you.

Lower repayment amounts that you consistently adhere to will make more progress than unrealistically high repayment goals that you repeatedly miss and ultimately give up on in discouragement.

Remember that technology can be your friend when budgeting – don’t be afraid to test out a variety of tracking apps to see if any make it easier for you to stick with your budget.

Health and Stamina

When considering cash flow, you have two primary levers you can tug on: reducing expenses and increasing income.

If it has been a while since you established contracts for your monthly utilities and services (such as cell phone, internet, energy), try contacting the providers to negotiate costs. You may find that there are promotions available for customer retention – many companies would prefer to reduce your charges slightly to keep your business, as that can be less expensive for them than attracting new customers.

For some, it can be more appealing to find ways to increase income instead. Technology opens additional avenues for side-hustles, whether it’s driving for Uber or Lyft in your spare time or selling items you no longer need on Facebook Marketplace. Exercise caution on any opportunities that seem too good to be true or that require you to purchase inventory of a product upfront, as they are likely to leave you in a worse position than where you started.

Also, don’t overlook the possibility of asking for a raise in your current job, especially if you’ve taken on new responsibilities and believe you are being paid below the current market rate.

Finally, you may be eyeing your 401(k) as a source of funds via early withdrawals – Don’t. Your future self will sorely miss the compounding growth you sacrifice, not to mention the 10 percent penalty on the withdrawal that you’ll owe in addition to the required income tax owed.

Hard Reset

If you’ve made genuine attempts to incorporate the strategies above, but your debt load remains overwhelming, don’t be afraid to consider more drastic debt relief options. Debt relief may be the responsible choice if paying off your credit cards, personal loans, and medical bills in less than five years isn’t realistic, or if your total debt (not including your mortgage or auto loan) exceeds 50% of your gross income.

  • Bankruptcy
    • Both the most well-known strategy and the one with the heaviest stigma attached, chapter 7 and chapter 13 bankruptcy can either wipe out most unsecured debt or establish a three- to five-year court-approved repayment plan.
  • Debt Management
    • Working with an accredited counseling agency, you can use debt management to secure reduced interest rates or waived fees to help pay off your debt more efficiently.
  • Debt Settlement
    • Contacting creditors directly, you may be able to negotiate a lower settlement amount if you are able to clear the amount in full by an agreed upon date.



While there’s no getting around the fact that money is tighter due to inflation, you still have an inventory of tactics to improve your financial positioning. These methods can be applied on your own or paired with the guidance and support of a qualified financial planner.

Bringing debt under control can be a long journey – feel free to reach out if you need encouragement to take the firs