If you have debt, you’re not alone. The average American carries more than $100,000 in debt.1 That existing debt load means unexpected expenses such as medical bills can be a tipping point into financial insecurity.2And 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.
One place to start? 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—including three specific, practical strategies to pay down or pay off your debt:
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.
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:
Trim from “wants” and a little from “needs” (i.e., a lower streaming bill) to come up with the total you can put toward debt repayment each month.
What’s the best way to pay off debt?
You can choose a debt repayment plan tailored to your unique circ*mstances— what’s best for you. In general, there are three strategies that can help you pay down or pay off your debt more efficiently.
What it’s called
How it works
How you keep it going
Why some people like it
1. The snowball method
Pay the smallest debt as fast as possible. Pay minimums on all other debt.
Then pay that extra toward the next largest debt.
A quick payoff is a quick win and can be a confidence booster.
2. Debt avalanche
Pay the largest or highest interest rate debt as fast as possible. Pay minimums on all other debt.
Then pay that extra toward the next smallest debt.
Paying off a big debt can boost a feeling of control and gets rid of big interest, too.
3. Debt consolidation
Combine debts into a single account.
Avoid any other debt until post-payoff
Possible lower interest and one account increases focus.
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 payoff, too.
What's next?
As you manage your debt, talk to a financial professional about your long-term retirement savings strategy. If don’t already have a financial professional, we can help you find one.
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.
What is the debt snowball method? The debt snowball method was originally made popular by personal finance expert Dave Ramsey. This debt-repayment method (which excludes your mortgage) focuses on paying off your smallest debt balances first while making minimum payments on all other debts.
With debt stacking, you line up your debt, most effectively from highest interest rate to lowest, then target one account to pay off, while still making payments on the others. Once the targeted account's balance is zero, you target the next one. Repeat the process until you are debt free.
The snowball method has you pay toward your smallest debt first until that card is completely paid off. You then move on to the next smallest debt and the next smallest after that.
It will take 47 months to pay off $20,000 with payments of $600 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
Debt avalanche: Make minimum payments on all but your credit card with the highest interest rate. Send all excess payments to that card account. Once you pay that account off, send all excess payments to your next highest rate. Repeat until all of your debts are paid off.
Introduction: My name is The Hon. Margery Christiansen, I am a bright, adorable, precious, inexpensive, gorgeous, comfortable, happy person who loves writing and wants to share my knowledge and understanding with you.
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