If there’s one thing that we all dread about finances, it’s debt. For many, debt can be the biggest obstacle standing between them and a healthy financial future. While it may seem like a daunting task, tackling debt doesn’t have to be stressful or challenging to deal with if you know where to start. In fact, living a debt-free life can actually take some stress off your plate by helping you strengthen your financial standing long-term. That being said, we’ve put together the most popular strategies for paying off debt and listed a few money management habits that can better prepare you for dealing with debt in the future.

Snowball Method

When experts talk about ways to pay off debt, the snowball method often comes up. With this strategy, you can continue to make the minimum payments on all your debt while focusing specifically on paying off your smallest amount of debt first. Once this amount is paid in full, you can move on to your next smallest debt and continue the pattern until you find yourself debt-free. The best part is that with this strategy, you can see faster progress in removing debt from your life. Plus, with all the cash that you begin freeing up you’ll have more money to put toward savings or use for your budget. The only downside to keep in mind is that with a focus on small amounts of debt, your larger balances may be left overlooked. Especially if these balances come with high interest rates, this could end up costing you more long-term.

Avalanche Method

If you want to avoid neglecting your larger amounts of debt, then the avalanche method may be better suited for you. This is the other hugely popular debt-repayment strategy that focuses on larger amounts of debt rather than smaller ones. With this method, you start by paying off your largest amount of debt first while still making the minimum payments on all others and, once that amount is fully paid off, you can move on to your next largest amount and so on. It works similarly to the snowball method – only in reverse. Again, you’ll find yourself with some extra cash on hand as you take control of your finances and begin conquering your debt. The only thing to keep in mind is that the progress you make with this method will be slower so it may take more time before you find yourself debt-free. 

Other Ways to Pay Down Debt

Aside from using the snowball or avalanche methods, there are plenty of other money management changes that you can make to help you pay down your debt:

  • Budget, budget, budget
    We’ve said it before, and we’ll say it again: budgeting is the number one step to keeping your finances in line. Once you’ve determined your income and how much you owe for necessary expenses per month, you can start allocating percentages of your funds toward things like debt repayment and other bills, saving, and personal spending. Just be sure to keep track of your spending and set limits for yourself so you don’t go over budget and end up owing more than you have.

 

  • Start an emergency fund
    The emergency fund is another often talked about tip for money management. With an emergency fund, you can have up to six months’ worth of your salary set aside to cover potentially expensive and unexpected charges, such as hospital bills or home repairs. This way, you won’t have to worry about being forced into even more debt due to unpredictable incidents.

 

  • Avoid taking on more debt
    As you’ve seen, it’s best not to fall into anymore debt when you’re still trying to pay off the balances you already have. On this note, don’t willingly take on more debt either because one balance is already paid off. It will only cost you more in the long-run and slow down any progress you may currently be making.

 

  • Pay on time
    If you want to pay off your debt responsibly, then be sure to make your monthly payments on time. Not only will you avoid late fees and penalty increases in interest, but you will also find yourself with an improved credit score. Having this good credit standing will then set you up to receive higher borrowing power and get lower rates on any major purchases in the future.

 

  • Pay more than the minimum
    In addition to paying on time, consider making more than the minimum payment if you have the means to do so. Even if you can only afford to pay a few dollars more than the minimum each month, a little can go a long way and help speed up your progress.

 

  • Consolidate your debt
    Another option to help pay down debt is to take out a debt consolidation loan or consolidate your credit card debt onto one card. If you choose to do so, it can help simplify multiple payments into one and make it easier to keep track of how much you owe. Plus if you qualify for a lower interest rate, it can help you save money on each payment. Of course, it is best to review both the pros and cons of debt consolidation and even discuss this option with a financial advisor to determine if it is the right move for you to make.

Summary

Whether you’re being faced with student loans, a mortgage, car payments, credit card debt, or all of the above, debt can be a challenging obstacle for many people to overcome. However, if you want to have healthy long-term finances and make major purchases in the future, then its best to research some expert-recommended methods and try your hand at tackling debt. All it takes is good money management skills and a strategy ready to go for you to start conquering your debt and living debt-free in no time.