How should I pay down debt? Which debt should I pay first?
Debt is sometimes a necessary tool to help bridge the gap for a car, school, or to get you through a life stage.
Paying down consumer debt, especially credit card debt and student loan debt, is critical to help you start building wealth. There are two primary ways to successfully pay down debt, debt snowball or debt avalanche.
First things first, list out all of your debts, making sure to outline type (e.g. credit card, personal loan, etc.), repayment term (how many months, or if credit card debt - revolving), loan balance, interest rate, and monthly payment.
Debt Avalanche
Order your debts from highest to lowest interest rate, and prioritize your most expensive loans first. This method is the most cost effective way to pay down debt.
Debt Snowball
Order your debts from smallest to largest loan balance, and prioritize paying the smallest balance first. This method may cost you more interest in the long run, but it can be motivating to gain momentum as you start paying off your debts.
GG’s no-brainer: if you are indifferent to paying down your debt, go with debt avalanche - which will save you interest in the long run.
Credit card debt
As a general rule of thumb, credit card debt should try to be avoided as much as possible, as interest rates are very high. However, if you find yourself in it - GG is here for ya 😌
Zero-APR credit card
Depending on the situation and how much you are revolving, you can first try to see if there’s a zero-APR card on offer that you can commit to paying down over the course of the promotion (generally 12, 15, or 18 months). Once approved, you can balance transfer from your higher-interest card.
Personal loan
If you can’t qualify for a balance transfer, but still want another option to save money on interest, consider taking a personal loan out to pay down your credit card balance, which typically have lower interest rates than credit cards.
Don’t take on more debt
If paying by credit card makes you more susceptible to spending money you don’t have, consider paying with cash.
Disclaimer: Not Financial or Legal Advice
The content provided on this blog is intended for general informational and entertainment purposes only. It is not intended to be, and should not be construed as, financial or legal advice. The information presented on this blog may not be current, complete, or accurate.