The Quickest Way to Pay Down Debt

Jake - Author/Founder

Jake - Author/Founder

Hi. I'm Jake. I believe you can build a wealthy life through frugal living and index investing.

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Eliminating Debt and the Path to Freedom

High-interest debt can feel overwhelming and impossible to escape. The resulting annual interest payments prevent us from investing, enslave us to employment income and limit our ability to purchase items that bring true value to our lives.

The average family credit card debt in the U.S. was $6,270 in 20191. This means that $1,250 was paid as interest each year, assuming a 20% Annual Percentage Rate (APR). 

The good news is that high-interest debt can be paid down faster than most people think. I’m not going to pretend it will be easy. In fact, it will be hard, especially at the beginning. It will require lifestyle changes and discipline.

The steps required to eliminate debt and transition towards freedom are:

  1. Identify and solve the root cause that led to debt;
  2. Save by reducing expenses and/or increasing income;
  3. Use the debt-avalanche method to pay down the debt;
  4. Build an Emergency Fund; and
  5. Invest and relax.

1. Fix the Root Cause

The first thing we need to do is look inwards to identify the root behaviors or external events that led us to this mess in the first place.

Debt is most often a result of behavior. Examples include gambling, addiction, bad habits, or caving in to pressure from our friends. Keeping up with the Joneses is another serious phenomenon, amplified by social media, that simply leaves everyone broke and unhappy.

Once the root behaviors are identified we will need to develop an action plan. We must then execute on the action plan to resolve the root behavior. Otherwise, we will simply end up back at square one. 

We can proceed to move forward and start with the debt avalanche method once the root problem is solved.   

Sometimes debt results from events that are outside of our control. Examples include a medical problem or a family emergency. The good news is that the external factors that led to the debt are likely temporary and we won’t have to expend efforts to alter behavior.

2. Generate Savings

We now need to generate savings to kickstart the debt avalanche process. There are two ways to increase savings: increase income or reduce expenses.

Expense reduction is usually the quickest way to bring about extra savings. We should first look at ways to cut spending on the three largest expense areas:  

  1. Housing;
  2. Transport; and
  3.  Food. 

After we minimize spending in these three areas, we can look to cut all other non-essential expenses.  

Will this be fun? No! It will be terrible for the first few years until you adapt to your new lifestyle. No vacations, no fine dining and sell your luxury car if you have one. You need to cut out all non-essentials. Fun, right?

Another option is to pick up a second job to increase income. A mixture of extra income and expense reduction will accelerate your path to becoming debt-free. This article will help you determine if you should focus on expense cutting or increase income to generate savings.

Delayed Gratification

 The quickest way to pay down debt requires serious action, patience and discipline. You will need to undergo short-term hardship to generate long-term benefits. In the beginning, progress will be slow, and a little demoralizing.

However, this hardship will be 100% worthwhile. Not only will it generate freedom of becoming debt-free, but it will also force you to develop strong financial behaviors. Primarily, you will develop expense management habits and build on your ability to delay gratification. I discuss how delayed gratification is central to generate wealth in this article

3. Use The Debt Avalanche: The Quickest Way To Pay Down Debt

With the debt avalanche method, you focus all efforts on paying down the debt with the highest interest rate first. You make minimum payments on all on all other debts with lower interest rates.

You guessed it. Credit card debt is the first to go due to its high-interest rate. 

The debt avalanche is the quickest way to pay down debt because interest payments decline rapidly as you pay down the high-interest debt. The freed-up cash flow can be used to pay down the remaining debt even faster. This has a cascading avalanche effect on all other debt. This is pretty much the compound effect in reverse. I’ll show how this effect plays out with an example below. 

Example: A Story About Jim

Let’s consider Jim, a man who is currently living paycheck-to-paycheck and is barely able to make minimum payments on his debt. Jim’s situation is far worse than the debt situation for most North American’s to illustrate that it is possible to turn your situation around.

Here are Jim’s debts, ordered from the highest interest rate to the lowest interest rate:



Interest Rate

Annual Interest Paid

Credit Card




Auto Loan




Line of Credit Loan








Jim is only able to make minimum payments on his card debts with no extra money left over to save or invest. As you can see from the table above, Jim has a total of $96,600 of debt and is paying $14,130 per year in interest!

Jim hates being a slave to debt. He feels powerless and is infuriated by the fact he is paying over $14,000 every year to interest payments alone. This is a key component that most people miss. 

The Decision To Change

In 2021 Jim said enough was enough and he made the decision to become debt free, with exception of his mortgage.

He wisely started talking with Jake from Furlan’s Wealth, and realized that the first step was to assess the root cause that led him to debt in the first place.

Jim loved to hit the bars, and went on two luxury vacations every year with his friend group. He realized that he racked up debt in response to peer pressure from his friend group. 

Jim learned to say no, which was hard at first, but shortly after he had a different friend group. He barely visited the bars anymore. The root cause of his debt was identified and resolved. 


Jim buckled down to save as much as possible. He sold his BMW and replaced it with a 5-year-old Honda Civic. He no longer dined out and cooked all of his food at home. Further, Jim canceled his annual vacations and drinking stopped completely, not even a drop. 

By taking action, Jim’s has reduced his expenses by $500 per month, equating to $6,000 per year. He now has $6,000 at the ready to go to war with his debt. 

Starting The Debt Avalanche

Credit Card Debt: 20% APR

 Jim understands the debt avalanche process and is ready to concentrate all efforts on his debt with the highest interest rate first. He puts his $6,000 per year towards his credit card debt while making minimum payments on his auto loan and line of credit.



Interest Rate

Annual Interest Paid

Credit Card




How long do you think it will take Jim to pay down his credit card debt?

Most would guess 10 years – $59,600 divided by $6,000 per year. However, this is wrong. By putting down $6,000 per year Jim is completely free of credit card debt in just six years!

The Avalanche In Action

The shorter timeframe is due to the extra cashflow that becomes available as interest payments decline. Jim can use the extra cashflow to pay down more principle the next year. The cycle repeats. Ill show you through example.

In year two, Jim’s remaining credit card debt is reduced by $6,000. He no longer has to pay 20% interest on that $6,000 of credit card debt: $6,000*0.2= $1,200. Jim has freed up $1,200 of additional cashflow above his $6,000 in year two. Now Jim has $7,200 that can be paid towards the debt principle. I’ve shown this in a chart below.


CC Debt Remaining

Debt Principle Paid

Interest Owed


























Note how the debt principal paid each year increases while the interest owed declines. Money that was once used to pay interest can now be used to pay down more principle!

This is the core principle I want you to take away from this article – interest payments are reduced, and more cash becomes available to go towards the principle. 

Credit Card Principal Paydown By Year

Slow Initial Progress

The goal to pay off over $90k in debt felt overwhelming, progress was slow at first, and positive feedback. There were countless times where Jim wanted to quit. 

Jim consistently reminded himself of how the debt paydown process worked: slow at first and exponentially accelerating later on. He remembered the importance of delayed gratification in the pursuit of freedom and stuck with it. 

As the avalanche effect starts to pick up, progress is obvious and he starts to feel super motivated. By year 5, Jim puts down $12,000 towards his credit card debt – double that of his initial savings in year one! 

It is six years later, and Jim has fully paid off his credit card debt. At this point, Jim has $11,920 in extra annual cash flow that was once paid as credit card interest, plus the original $6,000 in savings. Jim will have $17,920 available in year 7.  

The Auto Loan - 7%

It is year 7 and Jim starts paying down the $18,000 auto loan. Remember that Jim was making minimum payments on the loan until this point. For simplicity, I’ve assumed that he has paid down zero principal for the auto loan over the past six years.

Jim pays down the auto loan in one year. He is pumped and is well on his way to becoming debt-free.

It was hard at first, but Jim is now plowing through his debt at lightening speed. The avalanche is roaring ahead. It is now clear to Jim why the debt avalanche is the quickest way to pay down debt. 

The $1,260 of annual interest on his auto loan is now free to use to pay down the line of credit loan. Jim now has $19,180 in cashflow that can go towards the line of credit, his final debt.  

The Line of Credit - 5%



Interest Rate

Annual Interest Paid

Line of Credit Loan




It is year eight and Jim is excited as he begins to pay the $19,000 on his final loan! With the $19,180 in available cash flow, Jim crushes the principal in one year.

Jim is 100% debt-free! 

Debt Free

By the end of year 8, Jim has successfully paid off $96,600 in debt. It all started with slashing expenses by $500 per month. 

His money is no longer working against him. In fact, he is well-positioned to make his money work for him. Jim has build serious momentum over the past eight years in the form of extra cash flow and expense management habits. 

A total of $14,130 in extra cash flow is now available in addition to the original $6,000 that Jim started saving. The $14,130 that was once allocated to interest payments can now be used to build an emergency fund and completely reverse his financial position.

The best part about this process is that Jim has developed solid expense management habits and has found true sources of fulfillment while keeping his expenses at a minimum. 

Jim can even ease off the gas a little bit and increases his expenses by $6,000 per year to the same level they were before he started paying down debt. He is able to go on an annual vacation, dine out on occasion and give nice gifts to his loved ones while still having an additional $14,130 of savings every year.  

Can Jim transition to investing now? Not yet, he first needs to build an emergency fund.

4. Emergency Fund and Building Wealth

Jim is now positioned to build an emergency fund worth 3-6 months of non-essential expenses. Due to his expense management habits acquired from paying down debt, his annual expenses are a measly $25,000 per year. 

In one year, he builds an emergency fund of $14,130, equal to the interest he was paying on his debt.

Finally, Jim starts investing $14,130 per year into low-cost index funds. Jim is now on the path to building wealth, he has developed strong financial habits and has learned to make his money work for him.

Not only does Jim flip his financial situation around, but he retires a millionaire in year 33 by earning a 10% compounded annual return. 


Before we can kickstart the avalanche process we need to understand and solve the root cause that led us to debt in the first place. Often times the problem is behavioral. If this is the case, we need to change the behavior before progressing to paying down debt.

Once the root cause is resolved it is time to save money to kickstart the debt avalanche process. We can save by cutting expenses, increasing income or a mixture of both.

Finally, we are ready to move along to the debt avalanche process. This is the quickest way to pay down debt because it quickly frees up cash that was once paid as interest. All efforts are focused on the debt with the highest interest rate first. Cash flow that was once lost to interest will soon free up to pay down remaining debt even faster!

From Debt to Millionaire

The quickest way to pay down debt sets us up with the habits needed to grow serious wealth. Paying off consumer debt forced Jim to adopt solid expense management habits. These habits persisted once he was debt-free. Paying down debt also left Jim with extra cashflow.

Jim was able to retire will upwards of $1,000,000 by investing an amount once equal to his debt interest payments at a 10% return. He learned to make his money work for him, rather than against him.

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