With inflation on the rise, many Americans are forced to use credit cards or other forms of debt to continue their day-to-day lives. With over 75% of Americans reporting that they feel anxious about their financial situation, we’ve taken the time to look over a couple of options for when you do have the ability to start putting money toward your loans.
Avalanche vs Snowball Method
Two of the most recommended ways for paying off your debt are the Avalanche and Snowball methods. While credit card debt can be about as scary as those names make it sound, we promise they’re nothing to be frightened of – rather, great ways to secure your financial stability.
Avalanche Method: The avalanche method says you should pay off your loans with the highest interest rates first. This means you’re paying as little as possible in interest over time, ultimately reducing the total cost of paying off your debt. While this might be the best option mathematically, frequently our higher interest loans are larger – making the process discouraging. That’s why some people suggest it’s cousin, the Snowball Method.
Snowball Method: Similar to the avalanche method, the snowball method suggests paying off your smallest debts as quickly as possible. By reducing the total amount of outstanding loans you have, as well as increasing your payments as you go to create a “snowball” that will help you chip away at your bigger loans on their own.
While these largely depend on your personal situation and comfort, they’re both great options to make sure you’re lowering your debt effectively.
Consolidate Debt
Whether through a 0% APR balance-transfer credit card or a low-interest personal loan, consolidating your debt in one place can work wonders for helping lenders pay off their loans. While transferring balances typically comes with a fee, no-interest periods can extend for up to 18 months+ – letting you focus on chipping away at your principal balance in the meantime.
Personal loans are another option, which frequently offer lower rates than credit cards and allow you to put all of your debt in one place. This can drastically reduce the amount of missed or forgotten payments, as well as giving you one number to worry about.
Pay Above the Minimum
Regardless of what method you choose, paying above the minimum is one of the best ways you can get ahead of the curve when it comes to managing your debt. Your minimum payment is largely eaten up by interest on high-interest credit cards, but very often whatever you pay above that amount goes directly to your principal. This can provide a massive boost to how quickly you might be able to repay your loans.
