How To Pay Down Debt


You may have borrowed some money, maybe you have student loans, or you just took on a mortgage and are wondering, "How do I pay down debt quickly?" That usually depends on your salary. There are no real shortcuts, especially when you are paying down debt with interest. There are ways, however, to focus on debts that are more costly and pay it down faster. If you are willing to make the sacrifices necessary to do it, you can pay down your debts as quickly as you want as long as you are realistic with how much money you can send towards paying down your debt.

Paying down debt quickly usually requires some sacrifice, but it hardly means you have to give up your lifestyle. For starters, hop on Credit Karma or look up a credit card offers with a $0 annual fee or ones that offer a transfer at 0% for 12 - 18 months. There are also specific loans designed to help pay down debt faster, such as a company that specializes in student loan debt, and instead of paying 5% or 7%, you'll end up paying 3% or 4% which can save you thousands of dollars every year.

You may be tempted to borrow against your 401k which might sound good in theory, as you borrow from your older self, and pay it back with interest, while that interest is what you get to keep. It is never good to borrow from your future self. I mention that this method is a possibility, but please, it is a dire last resort, in which you have no credit and desperately need to borrow the money. Have a hard conversation with the 62 or 65 year old you who is asking you why he or she couldn't retire earlier. Just don't do it.

It is highly recommended that you always pay $100 to $200 above the minimum. Paying off the minimum is how most credit card companies stay in business and why so many offer credit cards without annual fees, relying on the high APR, which is usually between 19% to 25%, which can mean about $50 to $70 on a $3,000+ balance. It adds up if you are only paying the minimum, especially if there are millions of people who pay it this way. Never ever just pay the minimum. Always send extra to your credit card if you want to get anywhere. The same can be said of your mortgage.

The easiest, fastest, and best method is the Consolidation or Transfer Card method, which usually means it is a 0% transfer fee for 12 to 18 months or some may give you a lower interest rate, such as 5% instead of 20%, which can make the difference in savings of hundreds of dollars. These offers may not happen all the time and sometimes many are a one-time only. My personal favorite is Discover Card (source: that usually gives me two choices: pay the transfer fee of 3% for 12 months or pay 0% transfer fee for 18 months, both with an APR of 4.99% or 5.99%. I have saved thousands of dollars by transferring or borrowing money this way, usually paying off about 3 or 4 other credit cards, or just borrowing cash outright. To pay it back, you divide the number of months you have by the amount you need to pay. Even if you are offer by a few months, you won't be charged very much interest once it expires.

Another great route is the Snowball method, in which you will put all of your debts in a list side-by-side, to compare the debt. You begin by paying the smallest debt off first, while making the minimum on all of your other cards. This usually helps you get rid of the ones with the lower fees and the ones you can pay off the quickest. Remind yourself that once the debt is paid off not to utilize those cards again until you are ready to use them responsibly again. This method is usually the easiest and best for most people.

Opposite of Snowball is the Avalanche method, in which you take on the highest debts first. This usually eliminates the one charging you the most money because the interest rate on a $5,000 credit card is likely to be far higher if you only owed $1,000 on another card. This method may take a few extra months and you may not always see it immediately, but within a few months, you are tackling your biggest problem, and sometimes seeing that makes you feel good about your progress.

There is also the Blizzard method which focuses on getting everything under control. For example, three credit cards have a debt of $2,000 at 15%, $3,000 at 24% and $1,000 at 19%. The focus would be on the $1,000 at 19%, then the $3,000, and then the $2,000 card. Of course, this all means that minimum payments are still being made on the other cards while one receives the most aggression, but switching back and forth.

These are the four main methods to pay down debt. If you aren't already doing it, you may want to get an extra job, freelance, or even figure out where you can cut budgets, such as going out to eat once a week, saving on the expensive plate and the tips. If you are in major debt, designate a single credit card to handle everything, but pay this off as best as you can, while trying not to put more than $200 or $300 on it per month. You may need to say no to friends and family about spending money. If you are a smoker or drinker, it may seem a great reward, but not for your bank account. It may suck to give it up, but imagine what you could pay off if you did.

Commit yourself to goals! Open up a spreadsheet which has automatic calculations built-in and see what happens if you pay X amount. How many months would it take? Do that for every credit card. See what is reasonable and what works for you. You can also use an Amortization calculator to understand how much interest you will be paying and when your debt will be paid off. Take a look at this great tool here:

While life carries some debt to it, there are plenty of people living everyday who are debt-free and only spend in cash. Set goals with $200 or $300 a month for cash that you take out and spend. If you cannot control your spending habits, ditch the swipe card. If you prefer plastic over card, then set up your account to alert you when you've gone over your desired spending limit. It will send you a notification that you've spent this much and once you've done that, you can simply train your mind to think that you can no longer spend anymore money. Getting out of debt doesn't have to be impossible. It doesn't have to be hard. But you do have to be reasonable with yourself and give it time. Time is money and so is your freedom.

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