If you have debt, you’re not alone. The majority of Americans owe money in some way, shape or form.
According to the Federal Reserve, at the end of 2019, the average U.S. household carried $7,104 in credit card debt.
What this debt represents can vary drastically from person to person. To some, a debt might signify a major accomplishment or progress toward a large goal. To others, it might be a constant reminder of a time of crisis or hardship.
Regardless of your situation, there are some universal truths when it comes to debt: it’s stressful, it’s expensive and it limits the amount of money you can put toward your life goals.
As a result, debt repayment should be a top priority.
Watch as Jen learns about debt repayment from Dave the Debt Yeti.
There are three key steps to building a debt repayment plan:
1. Get organized
Ready to design a debt repayment plan?
Start by listing all of your debts, including credit cards, student loans, auto loans, medical bills, mortgage and personal loans.
Then for each debt, write down:
2. Choose a strategy
The strategy you choose will affect the order in which you pay off your debts.
Here’s an overview of three key debt repayment strategies:
The Snowball method
How it works: You arrange and pay off debts from smallest balance to largest balance.
Who it’s for: This strategy is ideal for beginners or for those who rely on visible progress in order to feel motivated.
Why it’s great: Small debts are quickly crossed off your list, which can give you a confidence boost that helps you stick to your repayment plan.
The Avalanche method
How it works: You arrange and pay off debts from highest interest rate to lowest interest rate.
Who it’s for: Ideal for those who truly believe that slow and steady wins the race – this strategy requires discipline and determination.
Why it’s great: This strategy eliminates your most expensive debt first, making it the most mathematically powerful debt repayment option.
How it works: You take out a new loan and use the borrowed money to pay off all your other debts.
Who it’s for: Those who are having trouble keeping track of all their various debts and repeatedly missing payment due dates as a result.
Why it’s great: You only have one loan – and one interest rate – to keep track of; factor in any additional fees before choosing this option.
3. Make a plan
After choosing a strategy, solidify the steps of your monthly repayment plan:
Download Debt Repayment Guidebook
Download a convenient, one-page summary.
You can talk to an Allegiance Credit Union financial coach today! Click here to learn more.