Choosing a Debt Payoff Strategy
Creating a plan can help you figure out what works best for you and even help provide motivation. There are two basic strategies that can help you reduce debt :
- Pay off high-interest debts first. Using a strategy sometimes called the avalanche method, you’ll make the minimum payments on all your debts, but put extra money toward the balance with the highest interest rate. This can help you save money in the long term because high-interest debts are more costly.
- Pay off the smallest debts first. If you need to build momentum in your debt payoff plan, the snowball method might make more sense. With this strategy, you’ll again make the minimum payments on all your debts. But then focus on putting any available money toward paying off your smallest balance first. Once you’ve paid that off, you can dedicate any funds that have been freed up to your next smallest debt and so on.
Reducing Your Spending
When you reduce spend, you can put more money toward debt and potentially even save money on interest. here are some ways to track your spend and cut down on expenses :
- Create a budget. List your monthly bills, such as rent, utilities and groceries, along with your debts, such as credit card balances and student loans. Write down how much you earn each month, and subtract your bills and minimum required debt payments. The amount you have left over is a starting place to consider how much extra to put toward your debt payoff each month.
- Set a goal. Once you know how much debt you have and how much you can pay toward it each month, figure out how long it will take to pay off the debt. Mark that date on your calendar. Having a goal in mind can keep you focused and motivated.
- Track your spending. Use whatever method works best for you, whether that’s an app, a spreadsheet, or a pen and paper. Write down everything you spend money on, and review the log every few weeks. This is a good way to better understand your spending habits and potentially find areas where you can cut back.
- Tell a friend or family member. If they know you’re working toward a debt payoff goal, your friends and family can offer support. They may also help you think of ways to budget or fun things to do for free, both of which can help you stick to the goal while still living your life.
Switching to Cash Only
While you ’ re paying down debt, it may be helpful to pay for things in cash so you ’ ra not increasing your accredit card balances. And if you need to use a card for your payments, consider using a debit tease so you ’ re not borrowing money.
Consolidating or Transferring Your Credit Card Debt
Another option for paying down credit wag debt is debt consolidation or combining multiple balances into a single newfangled one. Some people use a credit calling card balance transfer or a debt consolidation loanword for this purpose.
A balance transfer recognition card offer lets you move amateur debt from one or more accounts to a modern credit batting order. These cards much come with a lower interest rate for a specify time, which could help you save money if you ’ rhenium approved. The sake rate typically increases after the intro period ends. So it ’ s a good theme to make sure you can pay off the balance within that time inning .
For model, let ’ s say you have $ 5,000 in credit card debt and you open a balance transfer credit wag with a 0 % basic APR. If the promotional time period lasts 18 months, then you ’ d need to pay about $ 278 a calendar month to pay off the counterweight before the concern rate increases .
It ’ second besides a good theme to check whether the card charges any fees and understand the card ’ south terms and conditions before you apply sol you can make a fully informed decision .