Credit Repair

Learn How to Pay Off Debt Faster

Getting out of debt may seem like an impossible task for many Americans. But there are actionable steps and several options available. These options include the snowball method, the avalanche method, the snowflake method and debt consolidation.

It’s fair to say that all these methods require patience and organization. But with a clear plan in place, including an honest assessment of the total amount of debt and a timeline to pay it off, the light at the end of the debt tunnel may not be too far away.

Why is it important to pay off debt quickly?

Many Americans struggle with debt: In the last quarter of 2018, household debt rose by $32 billion, or 0.2%, reaching $13.54 trillion, according to the Federal Reserve Bank of New York.

In addition to the emotional consequences and stress that a heavy personal debt load can generate, consequences for one’s financial wellness are legion. Carrying a heavy debt load may:

  • Hurt your credit score
  • Cost you more money because of high interest rates
  • Prevent you from achieving financial goals and borrowing for larger purchases

To help remedy this, here’s an overview of the different methods you can use to pay off your debts faster.

Several factors may contribute to the option you choose, including the amount of debt you owe, the patience you have and the time you are willing to invest to tackle the problem.

Debt snowball method

The debt snowball method is one of the most common. Basically, it entails paying the debt with the smallest balance first, then tackling the larger ones. While keeping up with the minimum amounts due on all debts, you allocate any extra funds to the smallest debt. This allows people to eliminate one debt fast and move on to the next.

Pros: This method can provide momentum and “snowball” into helping you tackle larger debts.

Priya Malani, founding partner of Stash Wealth, a financial planning company, told LendingTree that, psychologically, it’s the most satisfying method.

“At the end of the day, personal finance is not just about numbers, it’s also about what is motivational,” she said. “This strategy brings you many wins along the way and so you are more likely to stick to it, and that’s key.”

Cons: If you end up paying off lower interest debts first, it could mean you’ll pay higher interest costs in the long run.

Debt avalanche method

The debt avalanche method takes a different approach than the snowball method: You repay the most expensive debt first, while continuing to make payments on all outstanding debts.

Concretely, this means making a list of all your debts in order from highest APR to lowest APR. Then, you make extra payments on the debt with the highest interest rate while continuing to make the minimum payment on your other debts.

Pros: By starting to pay off debts with the highest interest rates, you can save money in the long term. “From a mathematical standpoint, it’s the smartest method because you are paying the least in interest over the life of your loans by paying off the debt with the highest interest rate first,” Malani said.

Cons: If your debt with the highest interest rate also happens to have the largest balance, it may take you a long time to pay off your first debt.

Debt snowflake method

The debt snowflake strategy, as its name suggests, entails taking smaller steps toward repaying your debt by saving money in small ways. Take the money you’ve saved to pay toward your debts. Ideally, the snowflake method should be used with another method, such as snowball or avalanche.

Pros: Small changes are easy to make and can translate into huge gains. For example, skip the morning takeout and drink coffee at home, cancel some subscriptions, declutter your life and sell the extra stuff or bring a homemade lunch to work.

Cons: According to Malani, this is not really a method but more of a financial wellness bonus, and it works better in conjunction with another approach. If you are looking for a standalone strategy, it may not be right for you.

Debt consolidation using a personal loan

Debt consolidation essentially enables you to pay off all your debts with one loan, ideally at a lower interest rate, leading to a single loan payment over time. Banks and credit unions offer these types of loans.

Pros: Debt consolidation can make getting organized easier, as it streamlines the whole process of repaying your debts.

Cons: The Consumer Financial Protection Bureau (CFPB) warned that these loans may include fees or costs you would not have to pay if you continued making your other payments. In addition, some loans may have “teaser rates” that initially look attractive but may rise and necessitate higher payments in the long run.

Other methods

Another option is to take advantage of balance transfers, which most credit card companies offer. These enable you to consolidate your credit card debt onto one credit card with a low or 0% promotional interest rate, usually offered for a limited time. However, the CFPB warned that if you’re more than 60 days late on a payment, the company can increase your rate on all balances, including the transferred one. There will probably be a balance transfer fee as well.

Finally, you also have the option to consult a credit counselor to help you work out ways to manage your debt. According to the Federal Trade Commission, most reputable credit counseling organizations are nonprofits and offer services through local offices, online or by phone. If you need additional help, you could consult a credit repair agency.

The bottom line

While facing a heavy debt load might seem overwhelming, there are several ways to conquer it faster.

Malani recommended that once you choose the method best suited for you, automate the payments.

“Don’t leave it up to chance,” she said. “Automate it and you will make progress without lifting a finger.” She added a plus: When you automate payments, some lenders decrease rates.

Malani also highlighted another benefit of systematically working your way out of debt. You know right away what the ending point — the last day of payment — will be. “By knowing the exact day, you see the light at the end of the tunnel,” she said.


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