If you found yourself ringing in the new year with the burden of high-interest debt, Choice One is here with some step-by-step tips for paying off debt faster.
1 Get a grasp on your expenses
Many of us have no idea how much we spend each month, especially when we rely on credit cards. High-interest debt can add up quickly and become overwhelming. When your goal is paying off debt, you need to take a look back at your monthly expenses. What can you eliminate or cut back on? Cutting back on expenses by reducing your spending is a good way to find the extra money in your budget each month to pay down high-interest debt.
2 Increase your income
While cutting expenses can be a big help, it may not always be possible. If that’s the case with your situation, it may be time to look for ways to increase your income. Whether you ask for extra hours at work, look for a part-time job, or start a side hustle, the extra money you bring in can go directly to debt payments. This may mean taking on a few freelance gigs or driving for Uber Eats. The added income can help you put a dent in your debt.
3 Determine a payment method that works for you
Once you’ve earmarked extra money each month, it’s time to develop a payment plan. There are two different well-known strategies for tackling debt. They include the snowball method and the avalanche method.
The snowball method involves paying off the smallest debts first to get them out of the way before moving on to the bigger ones. For example, if you have three credit cards with balances, you will pay the minimum on the two with the highest balance, and as much as possible on the one with the lowest balance, until it is paid off. Once your balance on that card is zero, you would focus on the lowest balance of the remaining two, while making minimum payments on the third. When you pay off the second card, all of your extra income will be focused on paying off the balance of the final card. The snowball method helps you to build motivation by paying off smaller debts quickly.
The avalanche method is when you make the minimum payments on all outstanding debt, and then use any remaining money to concentrate on paying down the debt with the highest interest rate. The debt avalanche strategy enables you to save the most on interest because you are concentrating on paying down the highest interest rate debt the fastest. This method takes a bit more discipline because you may carry multiple debt balances for longer since you are focusing on the highest interest first. Some people prefer this method just because of the interest they can save.
4 Consider Debt Consolidation
If you don’t have enough extra income each month to adequately pay down debt, it may be time to consider debt consolidation. Consolidating multiple debts into one loan, such as a low-rate personal loan or home equity loan can help you consolidate and concentrate on one, easier to manage monthly payment. A low-rate balance transfer credit card can be another option for transferring the balances from higher-rate cards. Once you consolidate into a low-rate credit card, it’s important to halt your spending on the other cards to focus on paying down debt. View Choice One Community Credit Union’s loan rates to see how they compare to what you are currently paying. Consolidating with a Choice One loan may help you save on interest.
Paying off debt starting today
There are many reasons you may have built high debt balances, from an unforeseen medical emergency or home repair to the loss of a job. Whatever the reason, our tips above can help you with your goal of paying off debt faster. It’s important to focus and keep your spending in check while paying down debt. Every dollar that goes toward debt payment gets you one step closer to financial freedom. It will also help you to develop better financial habits moving forward.