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!!
The goal is to pay down ALL of your debt, obvi. But when it comes to paying off debt, you have a couple of options. There's a lot of math that could be done to determine which option saves you the most money in interest paid, but it may make sense to first ask yourself, "What is going to give me the most satisfaction?" Personally, I'm all about the feels (math wasn't my strong suit in school).
Once you pick your strategy, it's time to get to work. Follow the steps outlined for your strategy below.
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.
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!
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:
As you are slaying your debt, keep these debt hacks in mind:
While I haven't personally used these apps, they have great reviews! If you're looking for a tool to help keep you accountable, these could be a good start.
Do you have a credit card that you've had for several years? Have you made several on-time payments for the last several months? Call your credit card company and ask to lower your rate.3 You may not always hear "yes", but if you explain how you've been a loyal customer for so many years then they may lower your rate to keep you as a customer.
Like a track on repeat, we've all heard, "Spend your money wisely". But this is especially important when you're trying to pay off debt. The last thing you want to do is keep racking up more and more debt (that is an endless, vicious cycle). So limit the use of your credit card(s) and try to put any extra money toward debt payments. Your FOMO may be on high alert for a bit, but it will be worth it in the end. You got this!
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/