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.
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.
Make the minimum payments on all of your debts, and then funnel any extra money you have toward paying off your highest-interest debt. Next, concentrate on the debt with the next-highest rate, and so on. Put extra money toward the credit card or debt with the smallest balance.
The avalanche method is a debt repayment strategy focusing on paying off the account with the highest APR first, moving down from there. The debt avalanche method can take longer than other repayment strategies, but you could save more on interest in the long run.
With a debt consolidation loan, you borrow money from a lender and roll all of those debts into one loan with a single interest rate. This allows you to make one monthly payment rather than paying multiple creditors.
Making careful choices about spending and borrowing can help you avoid debt altogether. Another way to avoid or get out of debt is to make a budget. A budget is a plan that you can use to track how much money you spend. With a budget, you can look for ways to spend less money.
Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.
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