How to Slay Debt Like a Boss

Hundreds of millions of Americans are part of the debt club - with most of the debt coming from student loans, mortgage loans, credit cards, or a combination.¹ It's common and quite easy to join. You spent too much on the latest iPhone and couldn't cover your student loan payment, decided to take that road trip to see your favorite band, or little Liam decided he wanted to take up piano. It's easy to just pay with your credit card and think, "Eh. I'll pay it off next month". But what happens when next month comes with its own set of surprises? The debt piles up.

Before you realize it, you have thousands of dollars of debt weighing on your shoulders and anxiety from teetering on the edge of Debt Stress Syndrome (Truth; it's a real thing). It's no mystery what's causing you to have that helpless feeling in the pit of your stomach, and you can't sleep or eat. The time to act is now! Stop hitting the snooze button, go into full boss mode and slay that debt!!

Step 2: Slay away

Once you pick your strategy, it's time to get to work. Follow the steps outlined for your strategy below.

Slay strategy 1: Pay off the highest interest first

1. Create a list of all of your accounts. Next to each account, list your interest rate.
2. Sort your list by the interest rate so the highest interest rate is at the top, and the lowest interest rate is at the bottom.
3. Take your account with the highest interest rate and start paying more than the minimum payment. Do whatever you can afford here - the more you pay, the quicker the debt will be paid off.

   DYK? With many forms of debt, minimum-only payments are typically applied to interest first; making it very difficult to make a dent in your principal balance (outstanding amount owed). And interest accrues based on your outstanding principal. If you don't pay down the principal amount, then basically, you're just making interest payments.

4. Continue to pay the minimum balance on your other accounts with lower interest rates.
5. Once you pay off the debt on your account with the highest interest rate, repeat steps 3 & 4 until you pay off all of your accounts. AKA the "snowball method". ²

Slay strategy 2: Pay off the lowest balance first

Now let's take a look at your balance as the priority rather than the interest rate. Start with the accounts with the lowest balance and work your way up to the accounts with higher balances. Even if the accounts have lower interest rates, paying them off can simplify your debt - we'll take that win!

1. Create a list of all of your accounts. Next to each account, list your outstanding balance.
2. Sort your list by the amount owed so that the lowest balance is at the top, and the highest balance is at the bottom.
3. Take your account with the lowest balance and start paying more than the minimum payment. Do whatever you can afford here - the more you pay, the quicker the debt will be paid off.
Pro Tip! To help you figure out how much more you can pay, try creating a budget. When I was getting used to this budgeting thing, my dad helped me manually build a spreadsheet to track every expense (it's eye-opening to know where your money goes when you track every cent!) But now, there are free budget templates online that can get you started. Even though I'm not under 30, I personally like this budget spreadsheet from Money Under 30.
4. Continue paying the minimum balance on your other accounts with higher balances. Once you pay off the debt on your account with the lowest balance, continue working your way down the list by repeating steps 3 & 4 until you pay off all of your accounts.

Slay strategy 3: Consolidate your debt

Do you have multiple credit cards, loans, etc.? Let me guess: All have different payment dates and ways to pay, different balances, and varying interest rates? That's a lot to manage. If you are overwhelmed by all of this, you might consider a debt consolidation loan. A debt consolidation loan allows you to borrow one lump sum, at one interest rate, and use the loan proceeds to pay off your other outstanding debts. In essence, this simplifies your debt: One loan with periodic payments.

Here's how to go about a debt consolidation loan:

1. First, list out all of your outstanding debts and the interest rate associated with each of them.
2. Then, identify which debts you want to consolidate. Example: you may consolidate your student loans and credit card debt, but it might make sense to keep your car loan separate because it already has a lower interest rate.
3. Do your research on loan options to see if you can find a debt consolidation loan with lower interest.
4. Use the funds from the lower interest loan to pay off the debts you previously identified.
5. Finally, pay back your lower interest debt consolidation loan according to the repayment schedule in manageable payments.

Sources:

¹ Fay, Bill. (2019). "Demographics of Debt". In Debt.org. Retrieved from https://www.debt.org/faqs/americans-in-debt/demographics/

² Latoya Irby. (2019, February 06). "Why It's Best to Pay Your Highest Interest Rate Credit Cards First". In thebalance.com. Retrieved from https://www.thebalance.com/pay-high-interest-cards-960825

³ Alford, Catherine. (n.d.). "15 Money Hacks to Pay Off Debt Faster Than Your Neighbors". Money Manifesto. Retrieved from https://www.moneymanifesto.com/15-ways-to-pay-off-your-debt-quicker-5793/