Review Your Budget

Developing a strategy to help you tackle your debt more effectively often begins, and ends with your current budget. A budget is tool that tracks your income and expenses for a given period of time. Since most household bills are paid on a monthly cycle, most budgets are set-up to track monthly activity. 

First, review your monthly budget to see if there are ways to decrease your current spending or increase your income. Look for expenses that you can eliminate, reduce, or temporarily suspend while you focus your efforts on paying down debt faster. Learn more

Pick a Repayment Strategy

An effective strategy is an important part of any plan, and paying down debt is no different. Using one of these methods can help you save money and reduce the amount of time it takes to get out of debt so you can focus on your other financial goals quicker! Once you have reviewed your budget take a quick inventory of what you owe, the corresponding interest rates, and your expected minimum payments using this Know What You Owe worksheet. Then, review the following debt payment methods to see which is the best fit for you. 

Avalanche Method

With the avalanche method you focus on the debt that carries the highest interest rate first, while paying the minimum amount due on the rest. Mathematically, the avalanche method makes the most fiscal sense because you're prioritizing the debt that is costing you the most.  

• List your debt from highest interest rate to lowest interest rate
• Pay as much as possible on the debt at the top of the list, while paying the minimum monthly payment on the rest
• Move down the list as debts are paid off

Snowball Method 

With the snowball method you eliminate smaller debts first. This approach focuses on reducing the overall number of bills you have to pay. The extra boost from paying off each debt in quicker succession can also be very motivating! 

• List your debts from lowest balance to highest
• Pay as much as possible on the lowest balance items, while paying the minimum monthly payment on the rest
• Move down the list as debts are paid off

Consolidation Method 

With the consolidation method, you can bundle multiple debts into one larger personal loan with a set interest rate and term. Consolidating your debts can have a number of advantages. It can help you streamline your finances by reducing the number of monthly payments you have to worry about. Consolidation may reduce your monthly payment amount, if the payments are spread out over a longer term. And, if you payoff higher interest rate debt with a lower interest rate loan, you could save money. 

Another consolidation option is to utilize a balance transfer offer, where you can transfer higher interest rate debt onto a lower interest rate credit line. However, some cards may charge a fee for a balance transfer and the "balance transfer rate" may be for a limited time. See if a balance transfer makes sense for you.   

Contact us to see if a debt consolidation loan can help you save money. 

If you are using the consolidation method to help you pay down debt be careful not to use the cards/lines that you consolidated!  

Avoid Pitfalls

While in the process of paying off debt, avoid these common mistakes that can set you back. 

Accumulating More Debt

While you are working to pay down your debt it is important to stay on top of your spending habits and avoid taking on new debt if possible. If you experience an emergency situation, choose the most cost effective method to pay for it and incorporate the new debt into your payoff strategy.     

Co-Signing for Others

It's natural to want to help friends and family in times of need, but before you commit to become a co-signer for someone, it's important to consider the implications. Think through what may happen if your friend or family member stops making payments...

• You are agreeing to pay the debt if they cannot or will not
• Late or unpaid payments could negatively impact your credit report
• The additional debt may impact your ability to borrow in the future

Ignoring Creditors

If you're experiencing financial difficulties and cannot pay all of your bills on time, it's important to keep in touch with your creditors. Explain your situation and work with them towards a solution. Not every creditor may be willing to work with you, but some may and that's a win. 

Medical bills are particularly complex since you may be billed by multiple sources for the same visit. Many providers may offer payment plans that can help. If you are having difficulty paying off medical bills, follow this advice from the Consumer Financial Protection Bureau. 

If you have past due items, charge offs, or collections contact your creditors directly and try to negotiate a work out plan. Know your rights as a consumer, and report debt collectors who utilize illegal and abusive tactics. 

Should You Save or Pay Down Debt First? 

Generally speaking, paying off high interest debt should take priority over saving. If you're earning 3% APY (annual percentage yield) on your savings, but are paying 24% APR (annual percentage rate) on a credit line, the interest you owe on your debt will more than cancel out the interest your earn on your savings. 

The one exception to this rule is your workplace retirement savings account. The effects of compounding, the time value of money, and employer matching all have a tremendous impact on your future retirement plan.