Debt Management

Carrying debt can be stressful, costly and get in the way of other financial priorities. Create a plan to reduce it so you can focus on more important things. 

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If paying down debt is on your "to do list" but you aren't sure where or how to begin, we can help. Take these steps and get started today. 

To develop your game plan, start by taking inventory of your current debts. Make a list and be sure to include:

  • Lender and type of debt
  • Current interest rates
  • Minimum monthly payment
  • Balance
  • Any special offers and when they may expire 

Now that you have a sound understanding of your current debt load, take a look at your budget to see how much you can afford to allocate monthly to paying down debt. Look for expense items that you can eliminate, reduce, or temporarily suspend while you focus your efforts on paying down debt faster. You may also want to seek out opportunities to increase your income to speed your efforts. 

If you do not have a budget, this is a great time to get started.

Debt Consolidation allows you to bundle multiple debts into a single loan, often with a fixed interest rate and repayment term. It can simplify your finances by reducing monthly payments and may help you lower your interest rate. Before deciding whether debt consolidation is right for you, it's important to carefully review both the advantages and disadvantages.

Potential advantages include:
  • Streamlined payments
  • Easier tracking of debts
  • A lower interest that may help you save money
  • The possibility of becoming debt free sooner
Potential disadvantages include:
  • If the repayment timeline is extended you could pay more interest over the long run
  • Danger of accumulating new debt if you continue using credit cards after paying them off
Example Savings with a Debt Consolidation Loan
Let's say Dan owes a total of $10,000 on three credit cards at 26% APR. If he pays $538 a month he will pay off his debt in 24 months and pay $2,936 in interest. 
If Dan consolidates his $10,000 debt with a personal loan at 13% APR he can pay it off in 24 months with monthly payments of $476. He will pay $1,408 in interest. 

Contact us to explore how debt consolidation could save you money.
Many credit card companies offer the option to transfer the balance of another credit card, line of credit, or loan onto a new or existing card. This option can be appealing because the new card typically offers a lower interest rate, which may be fixed for a set period of time. Some cards charge balance transfer fees, and once the limited-time promotional rate expires the interest on the remaining debt may be higher than the original rate. Be sure to run the numbers carefully to determine whether a balance transfer is the right choice for you. 

Example Savings with a Debt Consolidation Loan
Let's say Dan owes a total of $10,000 on three credit cards at 26% APR. If he pays $538 a month he will pay off his debt in 24 months and pay $2,936 in interest. 
If Dan transfer the $10,000 balance to a credit card that charges a 4% balance transfer fee and offers a 0% fixed interest rate for 15 months, which then converts to a variable APR of 13.49%. If he continues making monthly payments of $538, he can pay off the debt in 20 months and pay $445 in interest. 

Contact us to explore how debt consolidation could save you money.
 

For debts that you are unable to consolidate, consider using a more effective debt repayment strategy to save you both money and time. Review the options below and run the numbers to see which strategy makes the most sense for you. 

The Avalanche Method prioritizes paying off the highest-interest debt first while making minimum payments on others. Mathematically, this is the most cost-effective approach.

  • List debts from highest to lowest interest rate (Know What You Owe)
  • Pay as much as possible on the top debt, while making minimum payments on the rest
  • Move down the list as debts are paid off

The Snowball Method focuses on paying off smaller debts first, reducing the number of bills and providing motivational momentum. This option is helpful for those who want to knock one or two low-balance items off of your list, but if interest rates on those debts are much lower than other debts this may not make the most fiscal sense. 

  • List debts from lowest balance to highest
  • Pay as much as possible on the smallest debts, while making minimum payments on the rest
  • Move down the list as debts are paid off
Contact us to explore debt consolidation loans, balance transfer offers or other options to help you restructure your debt.

For help creating a budget and debt repayment plan we are proud to partner with GreenPath Financial Wellness. GreenPath's National Foundation for Credit Counseling (NFCC) certified experts can help you develop a plan to reach your goals. GreenPath's basic counseling services are FREE for our members. Get started today!