If you’re struggling to pay off multiple debts, you may feel overwhelmed and unsure where to start. Fortunately, there are several efficient strategies for paying off debt—here are some tips to prioritize debt payments and get your finances on track.
Pay off high-interest debt first
One system for prioritizing debt is to pay off bills with the highest interest rate first. Focusing on high-interest debt can help you avoid paying extra money in interest in the long run. For example, if you have a credit card with a high interest rate, you’ll want to focus on paying that debt down first. By contrast, if you have a low-interest student loan, you may want to pay off other debts first while continuing to make minimum payments on the low-interest loan.
When looking at interest rates, you may also want to consider the types of debt you’re dealing with. Do you have any “bad” debt, like high-interest credit card debt? Or are all of your debts “good” debt, like student loans or a low-interest mortgage? Paying off “bad” debt should always be a priority, as it often comes with higher interest rates, can damage your credit score, and can cost you a lot of money in the long run.
Refinance loans for a better interest rate
Another way to pay debt off more efficiently is to refinance your loans. By refinancing, you might get a lower interest rate and make smaller monthly payments, freeing up extra cash each month to pay off other debts.
It often makes sense to pursue refinancing when it doesn’t come with any fees. For example, if you refinance student loans for a lower interest rate, they don’t come with closing fees the way refinancing a mortgage would. Before you refinance your loans, it’s important to compare offers from multiple lenders to ensure you’re getting the best deal possible. Also, examine the amount of interest you would potentially pay if you changed your term. If you do your homework and find a good deal, refinancing might be a smart way to lower your monthly expenses.
Use the debt snowball method
The idea behind the debt snowball method is simple: you focus on paying off your smallest debt first, while making the minimum payments on your other debts. Once your smallest debt is paid off, you roll the money you were using to make that payment into paying off your next smallest debt, and so on. The beauty of this method is that it gives you a quick win to keep you motivated while freeing up extra cash to put towards other debts. Plus, as you tackle each debt one by one, you’ll gradually build momentum and confidence, setting you up for success in paying off all your debts for good.
On your way to becoming debt-free
There’s no single best way to pay off debt, and it all depends on your individual situation. Whether you choose the refinancing route, focus on high-interest debt, use the snowball method, or continue to diligently pay the minimum, it’s important to find a method you can commit to. Whichever route you choose, the important thing is to stick to your plan and remain committed to becoming debt-free.
