Managing Debt

3 Debt Pay-off Strategies that can help you get back on track

Coming out of college, I had significant debt that I knew I couldn’t pay back right away. I had accrued more than $10,000+ in credit card debt, while also having student loans. Needless to say, I wasn’t on track to pay it off within a year, and knew this was a multi-year payoff. This forced me to think about my debt and not just pay it with automatic payments or minimum amount.

Overall, what’s important is that you pay off your debt fast with the money you have – while incurring the minimum amount of interest. Sometimes though – it’s about getting organized and here are some strategies for paying off your debt.

Understanding your debt strategy options

Some of the more common strategies to boost your payoff speed is highlighted in these areas:

  • Debt snowball: This is where focus on paying off your smallest debt first – while paying minimums on the others areas of debt. Then you tackle the amount you had been paying on it into payments on to the next largest. This strategy works for people that have multiple loans or lines of credit open – and getting a handle of knocking out the easiest first allows you to focus and minimize the number of other things you need to worry about. Also relevant for lines of credit where interest rates are nearly the same.
  • Debt avalanche: You pay off your debt with the highest interest rate first (while paying minimums on the others), then the next highest rate, and so on. It may save you time and money over the course of your debt payoff. This strategy works for when you have a varying degree of interest rates on your debt. Example would be you have a student loan at 7.9% and several other student loans at 5% and 3%. You’ll want to payoff the largest interest rate first because the 7.9% interest is growing your debt, so the faster you pay off that loan, the easier it is to get on track.
  • Debt consolidation:You can combine multiple old debts into a single new one, ideally at a lower interest rate than the rest of them. The goal is to make monthly payments more manageable or the payoff period shorter. There are a few ways to consolidate debt, including balance transfer cards and personal loans, or even student loan refinancing plans. Many banks would want to hold your debt, so the competition amongst other banks is to take all your debt and putting it in theirs, but benefit to you is only the interest rate and having all your debt in one place, so it would be one monthly payment. This strategy works for people who had a mountain of debt and are struggling to pay off the monthly. The lower interest rate will make it so you pay off less over the life of the debt.

One consideration on debt consolidation for student loans is that once you refinance, you have to be consistent in your monthly payments. For example, if you lose your job, you’ll still need to make payments because if you miss a month, it’ll climb up.

The benefit for having student loans from government, despite interest rates being ridiculously high, is that they allow you to pause your payments for job loss circumstances or even during this pandemic, President Biden has paused interest accrual for the time-being.

Either way, consider these 3 strategies as it fits your unique debt situation.


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