5 Strategies to Pay Off Debt Faster

In Illinois, the average credit card balance is $6,253. Whether you have more or less than this, it can be hard to pay off credit card debt once you start carrying a balance. However, nothing is impossible when you have a plan. In this article, we’ll cover 5 solid approaches to paying down your debt faster. From debt consolidation loans to the popular snowball method, find a strategy that works for you and take the first step toward that sweet, debt-free life you’ve been dreaming of.

Pay more than the minimum

Revolving credit accounts, such as credit cards or personal lines of credit, have a statement balance as well as a minimum monthly payment. However, if you look at your statement closely, you’ll see a “Minimum Payment Warning” that shows you how long it will take to pay off the balance with only minimum payments, as well as the total amount of interest you’ll pay. Those figures can be sobering, and they illustrate why paying more than the minimum, however much or little more you can afford to pay, will help you pay your debt off faster.

For term loans, such as personal loans, auto loans, and mortgages, paying more than the monthly payment amount will also help you pay the debt off faster and reduce the total amount of interest paid. However, just make sure your term loan doesn’t have a prepayment penalty. Also, revolving credit accounts usually have much higher interest rates than term loans, so that should be your priority for paying more than the minimum.

The snowball method

Paying more than the minimum on all your debts is one option, but it can make progress feel slower. If you’re looking for a quicker win to gain a sense of accomplishment and stay motivated, consider the debt snowball method instead.

To start, make a list of your current debt accounts with the balance and interest rate. The snowball method dictates that you start with your smallest balance first, regardless of the interest rate. Then you pay as much more than the minimum amount that you can afford (while paying just the minimum on all other accounts) until that first debt is paid off. With the momentum you’re feeling from your first win, tackle the next-smallest balance and so on in order of balance size until you’re debt-free. 

The avalanche method

On the other hand, the avalanche method is for people whose biggest priority is reducing the amount of interest paid, even if that means tackling a higher balance first and delaying the satisfaction of getting a win. 

To start, make a list of your current debt accounts with the balance and interest rate. Then, choose the account with the highest interest rate to tackle first. Make minimum payments on all else while paying as much as you can toward the highest interest debt. Once that is paid off, you can move on to the next highest interest rate.

Utilize debt consolidation

Consolidating debt means taking out a new loan, usually at a lower interest rate, to replace one or more existing debt accounts. The potential benefits of debt consolidation include:

• Convenience: Just one monthly payment instead of having to keep track of multiple payment amounts and due dates.
• Savings: If you qualify for a lower interest rate, your monthly debt payment may be lower, and you will also save money on interest over the life of the loan.
• End in sight: Replacing revolving credit accounts with a term loan means there is a specific end in sight when your debt will be paid off.

Before you apply for a debt consolidation loan

While debt consolidation is great for some people, it may not always be the best option. Ask yourself:

• Have I addressed the root causes of my debt? If not, you could potentially end up in credit card debt again.
• Can I afford the debt consolidation loan payments? While consolidating debt will save you money on interest, you may also have to make more than the minimum monthly payments. Make sure that fits in your budget.
• What is my credit score? You’ll need a good credit score and history to qualify for a debt consolidation loan.

Build your debt into your budget

Monthly debt payments should be included in the expenses you budget for. If you don’t already have a budget, doing so will help you get clear on where your money is going. You may be spending on things you’re not even aware of, such as subscriptions, or that you can live without for a while, such as dining out. If you can reduce your spending in those categories, you can put that money toward paying off your debt instead. 

Learn more about consolidating debt!

If your debt feels like a bigger burden than you can carry, we can help you determine whether debt consolidation is a good option. Qualified applicants can consolidate debt to secure the lowest interest rate possible, or we can explore the possibility of a fixed interest rate. At Town and Country Bank and Peoples Prosperity Bank, we offer a wide range of terms, quick and local decision-making, and personalized service from start to finish. A personal loan in Central Illinois and the Metro East is just a click away. Contact us with questions or visit one of our branch locations today to receive personalized assistance from our local lending team!