Hey, Savvy readers!
Let’s talk about something a little less glamorous but super important: How to pay down debt
Debt can feel overwhelming, and for many, the easiest response is to ignore it altogether (I’ve been there). Some people may be unsure of where to begin, or lack the knowledge and resources to make significant progress. This mindset, while understandable, can cause it to grow unchecked, making it even harder to address later on.
Another issue we face in society is that debt has become so normalized that it doesn’t seem like a pressing issue; it’s simply a part of everyday life. Meanwhile, the combination of growing interest in fees, along with competing financial priorities, such as rent, or groceries, makes debt repayment feel out of reach. Many people find themselves, putting off the problem for a “better time”, hoping that future changes like a raise or a new job will make tackling debt easier
This Post is All About How to Pay Down Debt
In this post, I’m breaking down how to pay down debt. Whether you’re dealing with credit cards, student loans, or other types of debt, understanding these practical strategies will help you on your journey to a debt-free life.
Debt awareness: you need to know how much debt you’re in.
The first step to managing your debt is getting real with the numbers. I know, I know—it’s tempting to avoid looking at that credit card balance or those student loan statements, but you can’t fix what you don’t face.
Make a list of all your debts: the total amount owed, interest rates, and minimum payments. Once you’ve got a clear picture, you can start making a plan to tackle it.
Pro Tip: Use a simple spreadsheet or a budgeting app to track everything in one place. Just seeing it all laid out can make it feel less overwhelming, and as you watch the numbers go down, you’ll be able to celebrate the small wins, and stay motivated.
Create a budget
If you don’t have a budget, it’s time to make one. Don’t worry, budgeting doesn’t mean you have to cut out all the fun stuff (I love Italian food too much to go cold turkey on dining out!). It’s about making sure every dollar you earn has a job, including paying down your debt.
Start by listing your income and necessary expenses (rent, utilities, groceries, etc.), and then figure out how much you can allocate toward debt payments. Be realistic, but challenge yourself to cut back on non-essential spending where possible.
Pro Tip: Follow the 50/30/20 rule—50% of your income for needs, 30% for wants, and 20% for debt repayment and savings. Or, tweak those percentages based on your situation.
Pick a Debt Repayment Strategy
There are two popular strategies for paying down debt: the Debt Snowball and the Debt Avalanche. Both work, but the key is picking one and sticking with it.
Debt Snowball
Pay off your smallest debt first, while making minimum payments on everything else. Once that’s gone, roll the amount you were paying into the next smallest debt, and so on. This method gives you quick wins to keep you motivated.
Debt Avalanche
Focus on paying off the debt with the highest interest rate first. This method saves you the most money in the long run because you’re cutting down on the amount of interest you pay overall.
Pro Tip: If you’re motivated by momentum, go for the Snowball. If you want to save the most money, stick with the Avalanche.
Consider Consolidating or Refinancing
If you’ve got multiple high-interest debts, consolidating them into one loan with a lower interest rate could be a game-changer. This can make your payments more manageable and help you save on interest.
You can also look into refinancing options for student loans or other large debts to lower your interest rate and monthly payments.
Pro Tip: Shop around and compare lenders before jumping into a consolidation or refinancing plan. Make sure the new terms are actually better for you in the long run.
Pay More Than the Minimum
This one might sting a little, but hear me out. Paying only the minimum on your debt—especially on credit cards—means you’ll be in debt for a long time and you’ll pay a high amount in interest.
For example, let’s say you have a credit card balance of $10,000 with an interest rate of 18% and the minimum payment is $200. If you only pay the minimum payment, it will take you seven years and 10 months to pay off the balance. On top of that, the total amount of interest that you pay is $8,622.21; that’s 86% of the original balance!
So, if you can afford it, always try to pay more than the minimum. Even an extra $50 a month can make a difference in how quickly you get out of debt and how much interest you pay.
Pro Tip: If overtime is something that’s offered by your employer, this is a great tool to utilize. Any time that you pick up an overtime shift calculate how much money you make on that shift and add that number to the minimum payment.
Avoid Adding More Debt
Let’s get real, you have to stop the debt cycle. That means no more swiping the credit card for things you can’t afford to pay off right away. Stick to your budget, save for bigger purchases, and try to rely on cash or debit whenever possible.
Pro Tip: If you struggle with credit card use, consider leaving your cards at home when you go out or freeze the account. This gives you time to think before making any impulsive purchases.
Build an Emergency Fund
Debt can often feel like a never-ending cycle, especially if you’re hit with an unexpected expense (hello, car repairs). Having an emergency fund can help prevent you from going further into debt when life throws you a curveball.
Aim to save at least $1,000 as a starter emergency fund, and then work your way up to 3-6 months’ worth of living expenses once your debt is under control.
Pro Tip: Set up automatic transfers into your savings account so you’re consistently building your emergency fund without even thinking about it.
Celebrate Small Wins
Managing debt can feel overwhelming, so it’s important to celebrate the small victories along the way. Every time you pay off a debt or hit a savings milestone, take a moment to celebrate your progress—just don’t go on a spending spree!
Pro Tip: Reward yourself in ways that don’t involve spending money, like treating yourself to a movie night, a relaxing day off, or a fun outdoor adventure.
This Post Was All About How to Pay Down Debt
Final Thoughts: Take Control, One Step at a Time
By taking these small steps—tracking your debt, creating a budget, picking a repayment strategy, and building an emergency fund—you can take control of your finances and start working toward a debt-free future.
Stay Savvy,
Abby
