Debt repayment can be simplified.
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Debt can be a significant source of stress. For example, according to a recent survey by financial services company JG Wentworth, 47% of Americans worry about their debt every day, and 54.6% feel ashamed. You may be juggling multiple credit cards, a personal loan, or student debt, each with different due dates, minimum amounts, and interest rates, making debt freedom seemingly impossible to achieve. But there are ways you can simplify debt repayment. Here are some strategies to help:
1. Know How Much You Owe
Just like in math, the most crucial step is to understand the problem. You cannot possibly eliminate your debts if you do not know how much you owe.
Gather your financial statements and other information and create a list of all your obligations, taking note of the following: creditor name, total amount owed, interest rate or APR, minimum monthly payment, and due date.
You may use pen and paper but a spreadsheet app will allow for easier updates and data manipulation.
For example, depending on how you want to approach tackling your debts, you may arrange the list based on overall balance, interest rate, or perhaps minimum payment. Or you can simply list them in alphabetical order. If you use a spreadsheet app, you can arrange and rearrange the data however you want.
Keep this list and update it as you repay your debts. Aside from awareness, it can also add extra motivation as you are able to visualize and monitor your progress.
2. Treat Debt Payments As Non-Negotiables
Just like with savings, a common mistake people make is to allocate money for debt servicing based on what’s left after spending. Don’t. Treat it as another non-negotiable, such as your rent, mortgage, or electricity bill.
This is where diligent budgeting is very useful. You should have fixed allocations for specific items so you don’t over- or underspend on others.
One method is the 50/30/20 budget, where you earmark percentages of your income for specific expenses: 50% for essentials, 30% for discretionary spending, and 20% for savings and debt repayment. Better yet, you can adjust the figures and give more weight to savings and debts, say 35%, with only the remaining 15% for non-important expenses such as dining out or streaming services.
There is also the question of whether you should prioritize debt over savings. That will depend on how bad your situation is, but there is an argument to be made for tackling debts first, then readjusting the percentages later when you have significantly reduced them. However you want to approach this, what’s most important is to not make debt payment an afterthought in your budget.
3. Choose Your Focus And Stick To It
To simplify repayment, you need to have focus. Yes, you can try and spread small extra payments across your accounts, but this dilutes the impact and makes it harder to see your progress. You must have a singular priority, and there are two effective methods for creating one: the Avalanche and the Snowball.
With the Avalanche Method, you focus on paying off the balance with the highest interest rate first, while making minimum payments on others. This saves you more money in the long run because it reduces your total interest paid. However, it can take longer to clear the first debt, especially if it has a large balance. This can be demotivating and may require more effort and patience to stick to the plan.
On the other hand, if you choose the Snowball Method, you pay the smallest balance first, regardless of interest rate. Then you move on to the next smallest until you clear all your debts. This method can provide quick wins and momentum. However, you may end up paying more overall since you are leaving the most expensive balances for last, allowing them to acquire more interest. Regardless of your method, the key here is to stick to the plan.
4. Try Consolidation
This strategy is particularly useful for multiple high-interest debts. For example, say you have five credit cards and one payday loan. This means you have six different amounts, six interest rates, and six potential due dates to track. That can be overwhelming.
You can look into debt consolidation and take out a larger loan at ideally a lower, fixed interest rate and use the funds to pay off all your smaller, high-interest obligations at once. This way, you are left with one monthly payment and one interest rate, drastically simplifying your debt management.
Just remember that when you consolidate, you should freeze those old accounts or close them entirely. Do not keep them as backups because you will open yourself up to accumulating new debt, which defeats the purpose of consolidation.
5. Consider 0% APR Balance Transfers
This can be a highly effective, though short-term, strategy for reducing interest costs and accelerating debt repayment. It works by moving high-interest credit card debt onto a new credit card that offers an introductory 0% annual percentage rate (APR), typically lasting between 12 to 21 months. During this window, every dollar you pay goes directly toward reducing your principal balance rather than servicing interest.
This approach can also help with cash flow management, since you can spread payments more evenly during the promotional period without accruing interest.
However, this strategy has two caveats. First, there is almost always a transfer fee (usually 3% to 5% of the total amount). Second, you must have a concrete and aggressive plan to pay off the entire balance before the promotional period ends. Once the 0% term expires, the regular APR will apply (usually between 18% to 30%), potentially erasing any savings.
6. Use 100% Of Windfalls For Debt Payments
Searching for extra cash to make additional debt payments can make budgeting a hassle. This strategy simplifies the process by directing all non-regular or unexpected income, such as tax refunds, bonuses, commission checks, overtime pay, or cash rebates, toward your highest-priority debt.
For example, if you receive a $1,500 tax refund and a $700 year-end bonus, allocating both to your credit card balance could immediately reduce your debts by $2,200, potentially saving you months of interest charges.
This approach allows you to make significant progress without the hassle of looking for areas where you can cut back from your budget every month. It also feels less like a sacrifice because the money comes from windfalls, so you’re not taking away from your usual budget.
Final Thoughts
Debt repayment can be simplified. Follow these strategies and be consistent. In time, you will build momentum and be closer to being debt-free. For more information and tailored guidance, consult a financial advisor or debt counselor.
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