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Financial Fitness

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 Perhaps, like many consumers, resuming student loan payments4 is causing you to take a good look at your debts. If you’re feeling a bit overwhelmed, you’re not alone. You can face your debt head on and conquer it with a little planning and strategizing. 

debt payoff strategy

Step 1: Pick your slaying strategy

The goal is to pay down all of your debt. When it comes to paying off debt, however, you have a couple of strategic options. 

  • Option 1. Pay off the balance on your highest interest loan first. 
  • Option 2. Pay off your lowest balance first. 
  • Option 3. Take out a debt consolidation loan.
conquer debt repayment

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

If you chose this option, here's what to do:

  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.  
  • Did You Know: 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.
  1. Continue to pay the minimum balance on your other accounts with lower interest rates.
  2. 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 loan 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.
  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.? If you find it hard to manage all of your payments, 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. Managing one payment might be your preference, but of course before taking out a new loan you should always research interest rates, total payoff, and ensure that this choice is the one that best fits your  long-term financial goals.

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

  1. List out all of your outstanding debts and the interest rates associated with each of them.
  2. Identify which debts you want to consolidate.
  3. Do your research on loan options to see if you can find a debt consolidation loan with lower interest. Make sure you not only do your due diligence but take your time when decisions are made. Debt can become unmanageable without a solid, well researched plan in place.
  4. Use the funds from the debt consolidation loan to pay off the debts you previously identified.
  5. Pay back your debt consolidation loan according to the repayment schedule in payments.
conquer debt repayment

Be mindful of spending

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). Limit the use of your credit card(s) and try to put any extra money toward debt payments.  Mindful spending is not only a great addition to a long-term financial wellness plan, but a great way to speed up the debt repayment process. Creating a budget can help you stay on track as well. New to budgeting? Check out our budgeting guide!

Sources:

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

2Latoya 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

3Alford, 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/

4Price, Jessica (2023, Oct 31). Resuming Student Loan Debt Repayment Will Impact Budgets; Consumers Should Prepare Now Retrieved from: https://www.lend360.org/resuming-student-loan-debt-repayment-will-impact-budgets-consumers-should-prepare-now/

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