You’ve tracked your spending, designed a budget for your monthly expenses, and you’re on a path to financial wellness. In this next step, you’ll create a plan for paying down debt.
Consumer debt can be one of the biggest challenges to financial wellness. With some intentional action and commitment, reaching true financial wellness is possible.
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. 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 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 you pay off all debts in full.
- The avalanche method involves getting rid of the debt that has the highest interest rate first before moving on to the debt with the next-highest rate until you pay off all debts in full.
3: Maximize your payments
Once you’ve chosen your debt-crushing method, maximize your monthly payments. You can do this by trimming your spending in one budget category and channeling that money toward your debt. You can also get some extra cash for your payments, such as freelancing for hire.
4: Consider a debt consolidation loan
When you consolidate debts to one low-interest loan, it’s a lot easier to manage the monthly payments. Plus, the savings in interest you won’t pay can be significant, especially if the new loan has a low interest rate. If this approach sounds right for you, consider taking out a personal loan from DoverPhila Federal Credit Union.
5: Negotiate with your creditors
Some credit card companies will work with you to lower your interest rate once you prove you are serious about paying down debt. After kicking off your debt payment plan, it’s worthwhile to contact each credit card company to discuss options.
No matter which strategy you go with or the methods you use for paying off your debt, commit to not adding more debt onto your card while paying it down. Paying off a large amount of debt will take time and willpower, but living debt-free is key to financial wellness. Best of luck on your debt-crushing journey!
OTHER ARTICLES IN FINANCIAL WELLNESS SERIES:
- Step 1: How to Track Your Spending
- Step 2: Creating a Budget
- Step 3: Paying Down Debt
- Step 4: Have the Money Talk with Your Partner