Pay Down Debt
Now that you’ve tracked your spending and designed a budget for your monthly expenses, you’re on a good path to financial wellness. In this next step, you’ll create a plan to pay down debt.
Consumer debt can be one of the biggest challenges to financial wellness. However, achieving true financial wellness is possible with intentional action and commitment.
Here’s how to pay down or off your debt in five simple steps.
1. Organize your debt
List every credit card you own, along with an outstanding balance. Next, jot down the amount owed to each card issuer. Next, list the interest rate of each card. Repeat these steps for other loans you may have as well.
2. Choose your debt-crushing method
There are two approaches generally advised to folks who are seeking to get rid of their debt:
- The snowball method involves paying off your smallest debt first and then moving to the next smallest until all debts are completely covered.
- The avalanche method involves eliminating the debt with the highest interest rate first, then moving on to the next-highest rate until all debts are eliminated.
Choose the method that makes the most sense for your personal and financial circumstances.
3. Maximize your payments.
Once you’ve chosen your debt-crushing method, find ways to maximize your monthly payments. You can trim your spending in one budget category and channel that money toward your debt. You can also find ways to get some extra cash for your payments, such as freelancing for hire.
4. Consider a debt consolidation loan.
Managing the monthly payments is much easier when you consolidate debts into one low-interest loan. Plus, the savings in interest you won’t pay can be significant, especially if the new loan has a low interest rate. Consider taking a loan from Elevate Credit Union if this approach sounds right.
5. Negotiate with your creditors
Many credit card companies will be willing to lower your interest rate once you prove you are serious about paying down debt. After kicking off your debt payment plan, contacting each credit card company to discuss options is worthwhile.
Now, you have options for your financial wellness journey to pay down debt. No matter your strategy or methods to pay off your debt, commit to not adding more debt to your card while paying it down. Paying large debts will take time and willpower, but living debt-free is key to financial wellness. Best of luck on your debt-crushing journey! And if you like these posts, make sure to check out our other MoneySmart Tips!