How to Pay Off Debt Faster

Debt can leave you feeling overwhelmed and put a wrench in the best-laid saving plans. But that debt doesn’t need to hang over your head forever. By strategically focusing on these 3 ways to pay off debt faster, you can create an actionable plan that aligns with your financial goals.

Strategies for eliminating debt aren’t always one size fits all. Borrowers should consider which methods align with their financial situation, including the amount of debt they hold, their credit history, and their long-term goals. Once you have the framework in place, consider which of the following methods may be right for you.

1. The Snowball Method

The snowball method lightens the debt burden by paying down the account with the lowest balance while still paying the minimum balance on your other accounts.

You’ll simply start by listing your account balances from the lowest to the highest. Add up the minimum payments for all of your accounts. Once you know the sum of these minimum payments, you can clearly see how much extra money you can put toward your smallest account. We will call this extra money the snowball fund.

After you’ve paid off the balance of your smallest account, take the minimum payment of the account you just paid off and add it to your snowball fund. In this way, the snowball, or the amount of available funds to chip away at debt, grows with each subsequent account you pay off.

Debt Snowball Method

2. The Avalanche Method

The avalanche method focuses on tackling the issue of interest accrual on debt at its source by paying down the account with the highest interest charge first. This strategy effectively chips away at debt while potentially saving you money on interest charges.

Like the snowball method, you’ll still pay the minimum amount on your other debt. However, instead of chipping away at the smallest account balance, you’ll put the lion’s share of payments towards the account with the highest interest rate. Once you pay that account off, you’ll repeat the process in order from highest to lowest interest rate.

3. Pay More Than Your Minimum Payment

If the methods above don’t seem like a good fit for you, try to at least pay more than your minimum payment on at least one of your accounts.  You can increase your payments a little at a time when you’re able to cut another expense or get some extra income. Or instead of paying a larger minimum payment once a month, you could make two smaller payments.

Typically, any extra payments will reduce the balance of your account and, in turn, reduce the interest charged. You’ll still want to budget to determine how much extra you can allocate towards paying more than your minimum. The last thing you want to do is spread your finances too thin and potentially occur late fees on other accounts.

How to Pay Off Debt Faster

Need Help with Your Debt Elimination Strategy ?

You may need to go through some trial and error to determine which strategy is best for your debt elimination. But you don’t need to plan alone. A CERTIFIED FINANCIAL PLANNER™  from Davis Capital Management can help you get a birds-eye view of your finances with a personal financial statement. We can also help map out your future goals with retirement planning, risk management and more.

Contact us today to schedule an appointment at (586) 930-0039 Ext. 700.

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