How to Pay Off Debt: A Smarter, More Sustainable Approach

If you’ve been looking at your credit card statements, or thinking about retirement and wishing your balance sheet looked just a little cleaner, you’ve probably asked yourself a version of this question:

How do I actually pay off debt… and make it stick?

Because paying off debt isn’t just about sending in a big check. It’s about building a system that works in real life; through job changes, caregiving seasons, unexpected expenses, and all the financial twists that come with midlife and beyond.

On a recent episode of the HerMoney podcast, entrepreneur and author Mike Michalowicz joined us to talk about the psychology behind debt, and why the way we think about it matters just as much as the way we pay it down.

Reframe Debt as a Season, Not an Identity

Jean Chatzky: How do you do the calculus, and specifically the calculus between how much you put away for emergencies and how much goes to that credit card debt, because that’s a hard line to toggle. 

Mike Michalowicz: When it comes to our finances, we’re in this temporary state. And what I noticed with most people I’m working with and have connected with is that they’re in debt, and what they say is, ‘I’m in debt’ or ‘I have debt,’ which is a permanent state. That is a challenge when it comes to our psychology because if you believe you have debt, then it’s likely you’re going to retain debt because that’s part of your identity. 

If you have debt, I prefer to say you’re in the recovery season. The word recovery is a positive term, whereas debt is often perceived as negative. If you’re in the recovery season, we’re going to allocate more to paying it off. 

Create a Dedicated System for Repayment

Jean Chatzky: How do we set up our own version of the Money Habit system?

Mike Michalowicz: Step one is ask yourself, what is your biggest financial concern, question, worry, or wonder you have when you wake up every morning? What is the primary financial concern? And for some folks, it’s, can I put food on the table? For some folks, it’s can I cover the mortgage or the rent? 

So let’s just pretend it’s paying for the mortgage. We’re going to set up an account called mortgage, and, for easy numbers’ sake, since there are roughly 4 weeks in a month, we’ll say the mortgage is $4,000. What we’re going to do is now, every time income comes in, and if it’s on a weekly basis, we’re going to allocate the necessary portion, in this case, a thousand dollars every week, to that account. 

Now, the magic of this simple system with one account is that you have addressed your biggest financial question or concern. You know, with 100% confidence, you’ve covered the mortgage, but that’s not the magic. The magic is that the money has come out of that common pool. Your deposit, your checking account, there’s less money there, and now it forces a conscious consideration of what am I going to do with the rest? I don’t have as much money as I thought I did. So you’ve started bifurcating your money, which then brings awareness to your spending, and that’s the magic of the system.

How To Pay Off Debt: The Bottom Line

If you’re wondering how to pay off debt, you don’t need more guilt. You need more structure.

Debt isn’t a character flaw. It’s a financial circumstance, and circumstances can change with a plan. When you stop treating repayment like an occasional act of discipline and start treating it like a system — with dedicated accounts, automatic allocations, and a clear priority order — you can make progress on paying it down.

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• How to Build an Emergency Fund When You’re Living Paycheck to Paycheck
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• Stability Over Stress: Building A Retirement Plan For Uncertain Times