Man sits in a home office and organizes bills to calculate how to pay down debt.

Debt Management: Strategies for Paying Down Debt


Here’s how to lower monthly payments to pay off debt and existing loans.

With an uncertain economy and rising interest rates, paying off or at least paying down the debt that you have is an incredibly smart money move. But paying off debt can feel overwhelming, especially if you have multiple loans or credit cards.

That may be why so many people don’t take any action on their debt. More than 20% of Americans are putting off creating a debt plan, according to Nerdwallet. The sooner you get started paying down your debt, the more quickly you’ll reduce those balances and be able to make progress toward your other financial goals. Here’s how to get started:

Separate Good Debt and Bad Debt

Some types of debt have a bigger impact on your credit and financial security than others. In general, high-interest, variable debt is the most harmful, while loans such as a mortgage or some student loans can be a tool to improve your overall financial situation. While you’ll need to manage both “good” and “bad” types of debt, you’ll want to focus on reducing the high-interest loans first.

Decrease the Amount You Owe Every Month

Lowering the amount you have to pay each month can free up some extra cash that you can direct toward strategically paying off your loans. These three strategies can help:

  • ·Ask for a lower rate. Seven in 10 cardholders who asked their credit card issuer for a lower rate received one, according to LendingTree. You’ll have better luck if you have good credit and a history of on-time payments, but it never hurts to ask.
  • Take advantage of introductory offers. Credit card issuers regularly offer balance transfers with 0% interest for a year or longer. If you’re considering such an offer, it’s important to understand whether you’ll pay an upfront fee and to have a plan to pay off the debt before that offer expires.
  • Consolidate multiple loans. In addition to potentially lowering the amount you must pay each month, consolidating debt can be helpful since it streamlines your payments to a single provider. It’s also important to do the math to see whether you’re paying less in total before going through with the consolidation.
  • Automate all your minimum payments. By setting up autopay for at least the minimum payments on all of your loans, you’ll ensure that you never miss a single payment, which can mean even more charges added to your balance. Be sure to continue checking your statements each month, however, to make sure there are no mistakes or unexpected fees on your account. Of course, you’ll need to pay more than the minimums on some of your debt to start getting those balances down, but you want to make sure you don’t fall behind on one loan while you’re focused on another.

Use a Debt Paydown Approach That Works for You

Most people use one of two techniques when putting any extra funds toward additional debt payments:

  • The snowball method. With this method, you direct any extra cash first toward the account that has the lowest balance. This allows you to knock out the first account as quickly as possible, which can be a great motivator to keep going.

Once you’ve paid off that debt, you take all your extra cash plus the money you were paying toward that loan and direct it to the account with the second-lowest balance. You’ll continue this way until you pay down the last loan, which would be the one with the biggest balance. The idea behind this method is to enjoy the momentum while you’re building good debt habits.

  • The avalanche method. In this method, you direct extra cash first toward the account that has the highest interest rate. Once you’ve paid off that debt, you’ll take all your extra cash, plus the money you were paying toward that loan and direct it to the account with the second-highest interest rate.

You’ll continue that way until you pay down the last loan, which would be the one with the lowest interest rate. While it may take you longer to see the dent that you’re making in your debt, this method will save you the most money.

Carefully Manage New Credit

While you’re paying down your debt—and after you’re finished, be careful before accepting any additional credit or loans. While this might require a change in your lifestyle, the sooner you can start living within your means, or spending less money than you make, the more financially secure you will be in the long run.

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