7 Tips for Paying Down Debt

Loans, Personal Loans

One reason why debt can feel overwhelming is that there seems to be so much of it. Like a crowded closet, we recoil at the chaos and try to pretend that it doesn’t exist. 

But debt, like clutter, will catch up with us eventually. To face our debt, we must face our fears, embrace our inner Marie Kondo and be willing to give our debt the full KonMari treatment.

If you want to spark joy and finally get a handle on your debt, follow these seven tips and start on the path to a life less cluttered by debt.

1. Organize: See the Big Picture

Start by creating an inventory of your debt so you truly understand the amount and type of debt you’re dealing with. Use your free credit report, your bank and credit card statements as well as your mortgage, student loan and auto loan statements to create that inventory. 

Be thorough and include all your debts. For each debt, create a list that includes the following information:

  • Name of lender or creditor
  • Type of debt (credit card debt, student loan, mortgage, etc.)
  • Minimum monthly payment
  • Current interest rate
  • Balance due
  • Length of loan remaining

Now, get them organized. You can use index cards, a handwritten table or a spreadsheet – whatever makes the most sense for you. The important thing is that you acknowledge your debt and make a plan for paying it down.

One helpful KonMari tip is to do it “ikki ni” or “in one go.” If you try to do this in bits and pieces, you’re likely to get distracted or give up too soon. 

Instead, set aside a block of uninterrupted time and commit to an honest appraisal of all your debt. 

Debt is often a family affair. If you have a spouse or partner or your finances are directly connected to your parents, make sure they’re a part of the conversation.

2. Prioritize: Know What Debt To Pay Off First 

Once you know your debt, you may have more questions than answers:

  • Should I pay off my auto loans, student loans or credit card first?
  • Can my mortgage play a role in managing my debts?
  • Should I focus on my higher balance or higher-interest debt?
  • If a debt is already past due or in collections, should I focus on paying it down?

We get closer to serenity when we know which debt to pay down first. 

While everyone’s debt is different, use these debt mantras to guide your path to debt freedom:

Let no debt fall through the cracks

First, make sure you’re staying on top of your current debts and prioritizing the debts you can control. With every late payment, you risk doing further damage to your credit score, which can make it harder for you to get new credit in the future.

If you have debts that have gone into collection, do your best to pay them off. Work with your creditors, but don’t let them pressure you into paying them at the expense of paying off your other current debts. 

Start with your highest-interest debt 

Once you’re focused on paying off more of your debts, target your high-interest debt first. These are usually unsecured debts, like credit cards, lines of credit and personal loans. These should be your priority, not just because of the interest, but because they often come with fees that can add up quickly and grow your debt.

Don’t neglect lower-interest debt

Next, look at your lower-interest debt, like your mortgage, auto loan or student loans. Because these loans have lower interest rates, you don’t have to worry about attacking them right away. Just make sure that you’re making your payments on time and in full.

3. Strategize: Focus Your Payment Power

Now that you have a better picture of your debt and you know how to prioritize your payments, you can start thinking about how to create a plan for paying it down. 

Wondering how to pay off high-interest credit cards? It’s easier than you think. 

  • Give yourself an allowance: After you’ve met all your monthly minimum payments, collect any leftover funds and use them to create a monthly debt payoff allowance.
  • Address one debt: Take that debt allowance money and apply it to one prioritized debt account.
  • Regroup and repay: Once you’ve eliminated that debt, add the money you saved from paying off that account to your monthly debt payoff allowance. You can apply that money to the next debt account you’ve targeted on your list.

With each debt you check off on your list, you grow the amount of money you can apply toward paying off the next one. This lets you pay off each debt faster than you could before.

Snowball vs. Avalanche methods

If you’re trying to manage credit card debt and other high-interest debts, there are two common methods you can try:

  • The debt avalanche method: Pay off your highest-interest debts first, regardless of the balance. This will lower the interest you pay overall.
  • The debt snowball method: Pay off your smallest debt balances first. You pay more in interest – but you build on debt elimination success. And that’ll give you the incentive you need to stay on track.

Both are helpful for different reasons. The key thing to remember is that you want to focus on attacking one balance at a time. Then you can use the money you save to power up your debt paydown plan.

4. Consolidate: Declutter Your Payments

Use a debt consolidation loan, a personal loan or a low-interest credit card to consolidate multiple debts into a single payment. 

When you reduce the number of payments you need to make each month, you avoid the danger of making a late payment. Consolidating payments can also help you get a better deal on high-interest loans, if you can refinance at a lower interest rate.

5. Automate: Zen and the Art of Monthly Payments

You’re less likely to miss a payment if you don’t have to think about it. For debts with regular monthly payments, automate them so you don’t forget about them. 

Even better? Most lenders will let you customize when your payment is deducted, so you can schedule payments after you receive your paycheck.

Be ready for emergencies. The best way to not get into debt is to not need to borrow. Build an emergency fund equal to 6 months of income or more.

6. Refinance: Transform Bad Debt Into Good Debt

If you’re a homeowner and you don’t like the terms of your current loan, you may be able to change it. Refinancing your loans can be a powerful way to lower your monthly payments, free up your income and get out of debt faster.

7. Find a Helping Hand: Assistance Is Not Weakness

If you still feel overwhelmed by your debt, you shouldn’t have to shoulder the worry alone. Find allies who can help you with managing your debt. You may be surprised to learn how much help is available.

  • Talk to your financial institution: They may be able to help you with a personal loan, consolidation loan or financial counseling.
  • Talk to your lenders: If you’re having trouble making your payments, talk to your lender. You may be able to negotiate better terms, or they may be willing to give you some breathing room.
  • Talk to your financial planner: If you have a financial planner, explain your situation and see if there are ways to lower your debt while sticking to your financial plan.
  • Talk to your employer: Your employer or union may offer a financial wellness program as a benefit.
  • Talk to a credit counselor: The National Foundation for Credit Counseling (NFCC) can connect you with a nonprofit credit counseling service in your area. They can help you organize your finances, work with your lenders to create a debt management plan and connect you with legal resources, if bankruptcy is necessary.

Spark Joy and Get Out of Debt

Paying down debt isn’t always easy. But with the right plan and the right mindset, it can be easier – and it can be done. 

Take a deep, cleansing breath. Open up a spreadsheet. Declutter your debt. And take your first step toward financial freedom.

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