Day 22: Pay off Debt (30 Day Financial Wellness Challenge)

Prioritize your debts and choose a payoff strategy.

Day 22: Pay off Debt (30 Day Financial Wellness Challenge)Welcome to Day 22 of the 30-Day Financial Wellness Challenge.

Each day will comprise of financial exercises, some short and others a bit longer, to help you become financially fit. The goal is to tackle different aspects of personal finances one day at a time.

After the 30 days, you’ll have a stronger understanding of your financial health and an action plan to improve your financial wellbeing. Review Day 21: Spend Less.

On day 22, you’ll learn how to pay off debt.

Why it’s important to pay off debt

Debt is the ball and chain that can keep you from reaching your goals. But you don’t have to live shackled to tremendous amounts of debt for the rest of your life. Debt-freedom can be yours with a little patience, persistence, and a plan.

If you’re currently behind on your debt payments, then consider reading the article on how to reduce your debt stress.

It’s important to understand that not all debt is treated the same. Credit card debt is possibly the least favorable debt to have compared to a mortgage. And different debts can be paid off with a different plan.

Prioritizing Debt

Payday loans

Payday loans are easy-access high-interest loans often set with the borrower’s pay cycle. The loan amounts are typically for a few hundred dollars but come with high-interest rates and late fees making them the most expensive debt to have. Payoff payday loans immediately. And find alternatives to break the cycle.

Credit Card

Credit cards can be useful tools but if remained uncheck can lead to long-term debt. Credit card debt can seem like an overbearing force weighing down your finances. Unlike mortgages or student loans, credit card debt is undoubtedly considered the “bad” debt.

Secured Loan

Secured debts are tied to collateral. For example, savings account for a secured card, a car for an auto loan, or your RV for a recreational loan. If you stop making payments, lenders can access your savings, and repossess your car and RV.

Student Loan

Student loans come in two types: federal loans and private loans. With federal student loans, you have additional benefits such as income-based-repayment plans and loan forgiveness. These can help you with lowering your payments and canceling your loan in the future. In contrast, private loans are offered by private lenders who provide different perks for their loans but don’t have any benefits comparable to federal loans.

Home Loan

Home loans such as mortgages and home equities have less priority in debt repayment. They often have lower interest rates and may also offer tax benefits. However, you can choose to pay off the mortgage sooner by adding extra payments towards the principal each month. You’ll pay less interest over the life of the loan and may have the house mortgage-free years before the original term date.

Now that you have a better understanding of the different types of debt, let’s get started with the challenge.

Day 22 Assignment

The goal of this challenge is to list the details of your expenses and start the process to pay off debt.

  1. Categorie your expenses based on unsecured to secured.
  2. Prioritize based on interest rates highest to lowest in each category.
  3. Add as many lines necessary to reflect all your outstanding debt obligations.
  4. Indicate in comments any changes to interest rates or refinance/consolidation options.

Although this task can be completed in one day, reaching out to creditors and applying for loans may require additional days. Use the sheet to keep track of your progress.

Debts Minimum Monthly Payment Total Owed Interest Rate Current Status Comments
Payday Loans $ $
Credit Cards
1. $ $
2. $ $
3. $ $
4. $ $
Loans $ $
  Personal Loan $ $
  Auto Loan $ $
  Line of Credit $ $
  Recreational $ $
  Other: $ $
Student Loans $ $
  Federal Loans $ $
  Private Loans $ $
  Private Loans $ $
Mortgage $ $
  Primary Home $ $
  Vacation Home $ $
  Rental Property $ $

Pay off Debt Strategies

The same strategies can be used with debt from the Spend Less challenge.


Refinance your debt into a lower-rate loan. Reduce your monthly payments and total cost of borrowing by refinancing your personal loans, auto loans, and mortgage.

  • With private student loans, refinance to consolidate multiple private loans into a lower rate and better terms.
  • Use balance transfer offers to move balances from higher rate credit cards into a 0% interest balance transfer card or lower APR card.


Call your lenders and credit card companies about lowering your current interest rates. Many have programs that help good customers with loyalty rate reductions and others have options for borrowers who’ve fallen behind.

Use the list to prioritize your phone calls with each creditor.


Make debt payments simpler with consolidation loans. Get the benefit of lower interest rates, better terms, and a lower monthly payment.


Most loans are amortized meaning the interest is frontloaded in the payment schedule. Basically, you’ll pay the interest first before reducing the principal balance until the term ends. Pay more than the minimum monthly payment each month to lower the principal balance. As you pay down your principal balance the length of time it takes to pay off your debt is reduced.

  • With credit cards, review the recommended payment to pay off balances in 3 years as opposed to the minimum balance.
  • Verify with your lenders how additional payments made to auto loans, personal loans, and other unsecured loans are applied.
  • To pay off student loans and mortgages, contact the loan servicers and indicate that extra payments made each month (or one-time additional payments) is applied to the principal balance.

Credit Card Payoff Plan

If you have multiple credit cards with balances, it may seem like a daunting task to pay off the debt. But there are things you can do to eliminate the debt sooner than later. Start by paying off the lowest balance cards first then work your way to the highest balance. Or you can pay off the highest interest rate card first regardless of balance. Then work your way to the lowest rate card. Learn more about Debt Snowball or Debt Avalanche: Which method is best for you? 

Bonus Challenge

In a previous challenge, you were tasked with calculating your debt-to-income ratio (DTI) to determine how much of your income was allocated to debt payments. A higher DTI ratio meant you were over-leveraged and could face financial hardships if income was disrupted. It also could prevent you from getting approved for a mortgage to purchase your dream home. Now that you’ve worked to reduce your debt, calculate your new DTI.

  1. Review Day 7 debt-to-income ratio
  2. Calculating your new debt-to-income ratio
Previous DTI (Day 7) New DTI
   Total Monthly Debt $ $
÷ Gross Income $ $
= DTI Ratio

Additional Reading

Next Daily Challenge: Day 23: Start Investing

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