4 min read
3 ways to pay off your debt
From the snowball method to debt consolidation, three strategies can help you get ahead of principal and interest payments and get closer to living debt free.
If you’ve got debt, you’re not alone. The average American has about $80,000 in debt, excluding home mortgages. But unexpected or unplanned debt such as medical bills or credit card balances can be a tipping point into financial insecurity.1
If you have too many payments every month, you might get behind on other financial goals such as building an emergency fund, taking a vacation, or adding to a retirement account.
Try to make progress every month on reducing your debt. It takes a little organization up front, plus a strategy that fits your budget and your preferences. These steps can help:
Make a list of all your debt.
Before you start paying off debt, tally how much debt you have. Make a list with this information for each bill you owe.
The details you need to know about every debt:
- Debt name/account
- Type of debt (credit card, student loan, etc.)
- Interest rate (some debt is more expensive, i.e., has a higher interest rate, than others)
- Payment terms/length
- Minimum monthly payment
Figure out the maximum you can pay every month.
Review your budget and answer these questions:
- How much do you need to pay for necessities such as rent/mortgage, insurance, utilities, and food?
- How much do you currently pay each month toward debt?
- Can you temporarily trim a few budget items to put even extra toward debt?
- Any extra income—tax refund, side hustle, things like that—to put more toward debt?
The 50/30/20 approach3 simplifies budgeting:
Pick a debt repayment strategy.
In general, there are three debt repayment strategies that can help people pay down or pay off debt more efficiently.
|What it’s called||How it works||How you keep it going||Why some people like it|
|The snowball method||
Celebrate success and stay on top of future debt.
Sometimes debt can be good to help you build a credit score or accomplish goals—such as buying a house—that would be hard to do without a loan. But lots of extra debt can weigh down your credit score and add up to interest you didn’t want to pay. So celebrate every extra payment—and every debt pay off, too.
What to do next?
- After you’ve paid off debt, focus on building retirement savings. Learn what can go into a successful post-work plan.
- Talk to a financial professional about your retirement saving strategy. If needed, we’ll help you find one.
2 Experian Consumer Credit Review 2020
3 All your worth: The ultimate Lifetime money plan by Elizabeth Warren and Amelia Warren-Tyagi
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