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How to Pick a Debt Payoff Strategy
Are you ready to be more intentional about paying off your debt? It is time to put the pedal to the metal and start working hard to get rid of all of your personal debt. We know that the Bible tells us that debt makes us a slave and paying off debt is one of the steps toward reaching financial independence.
So you’re ready to get serious about paying off your debt. In this article, we will discuss different debt payoff strategies and how to pick a debt payoff strategy.
Common Types of Debt
What kind of debt are you ready to tackle? There are a lot of different types of debt out there. You may have one or you may have many. Whatever type of debt you have these debt payoff strategies will work for you.
Common Types of Debt:
Student Loans
Car Loans
Medical Debt
Credit Card Debt
Home Equity Loans
Personal Loans
Payday Loans
IRS and Government Debt
Things You May Not Realize Are Debt:
Paying Off Your Cell Phone
Furniture
Utility Bills
Overdraft Charges
Why You Need a Debt Pay off Plan
A debt payoff plan is more than just taking care of your debt. It is about making good financial decisions. The Bible makes it clear that debt is a form of slavery. Ultimately, we want to honor God with our money and how we handle our finances.
In order to be faithful to Christ and be good stewards of the resources he has given us, we need to make a plan to get rid of debt!
Once we break free of the bondage that is debt, there are so many possibilities when it comes to our finances. If you are on the journey towards financial freedom, paying off your debt is a crucial step in that process.
I want you to set yourself up for success both in your relationship with Christ as well as in your financial journey.
Debt Payoff Strategies
There are a few different strategies that experts suggest when it comes to paying off debt. We will look at two debt pay off strategies: The Debt Snowball and the Debt Avalance.
The Debt Snowball
This strategy is called the snowball strategy because you start small and get bigger. You focus on paying off the smallest debt first (while still paying the minimums on the others). When the smallest loan is paid off, you focus on the next largest.
Steps to Using the Debt Snowball
- List your debts from smallest to largest.
- Focus your overpayments on the smallest debt.
- Continue to pay the minimum on your other debts.
- Once the smallest is paid off, roll the amount you were paying on that one to the next largest (like a snowball).
- Continue until all debts are paid off.
Benefits of the Debt Snowball Strategy
The benefit of using the debt snowball as your debt payoff strategy is the concept of little wins. Paying off the smallest amount of debt first will give you a win sooner than other strategies. This will give you a sense of accomplishment especially if you have many debts.
The snowball method also has the potential to impact your credit scores more quickly since you are paying off individual debts faster.
The Debt Avalanche
The Debt Avalance strategy focuses on paying the debt with the highest interest rate first (while still paying the minimum on the others). After paying off the debt with the highest interest rate, move on to the next in line.
This is the strategy that my husband and I used to pay off my student loans. We tackled the ones with the highest interest rate first and moved our way down.
Steps to Using the Debt Avalanche
- Find the interest rates for each of your debts.
- List the debts in order from largest interest rate to the smallest.
- Focus your overpayments on the largest interest rate.
- Continue to pay the minimum on your other debts.
- Once the largest interest rate debt is paid off, roll the amount you were paying on that one to the next smallest.
- Continue until all debts are paid off.
Benefits of the Debt Avalanche Strategy
Your debts with high interest rates will end up costing you the most. The idea of paying off the debts with the highest interest rates first is that you will save more money this way. Crunch the numbers yourself to see how much you will pay in interest alone on each of your debts.
How to Pick a Debt Payoff Strategy
Each of the debt payoff strategies has its own benefits, so how do you pick between the two?
If you have multiple different debts ranging is size, the debt snowball might be a good strategy for you. By paying off small debts first you will feel more accomplished when you pay off the last bit of each debt. If you need to feel like you are making a dent in your debt, this is a great strategy to take.
If you are looking to save the most money when it comes to debt payoff, the debt avalanche might be a good option for you. It may feel like it is taking longer to get your debts paid off, but the math will show you the money wins you are making by choosing this strategy.
When it comes to picking the right debt pay off strategy for yourself you should consider how you mentally process wins. If you need to see the evidence and truly feel like you are doing something, the debt snowball may be a better option. However, if you are someone who likes to see the numbers and are okay with not reaching wins as quickly then the debt avalanche may be a good option.
9 Tips On Paying Off Debt Quickly
After you have picked a debt payoff strategy you are ready to crush those debts! If you’re looking to pay off your debt quickly, here are a few small lifestyle changes you can take in order to make that happen.
1. Tell People About Your Debt-Free Journey!
The best way to keep yourself accountable on your debt-free journey is to tell others about it. You might not be comfortable admitting to the world that you have a boatload of debt, so start by telling your closest friends and family members who will be your biggest cheerleaders along the way!
2. Know Your Budget Inside and Out and Stay On Track
Start a budget and get to know your spending habits really well. Make sure you stay on track with your budget so you have extra money to put towards overpayments of your debt.
Set up a budget using our FREE Budget Binder here.
3. Lower Your Expenses
What areas in your life can you cut back on your spending? Can you reduce your housing expenses by moving, house hacking, or cutting back on home services like lawn care? Maybe you can carpool to work, use car-sharing services, and stop paying so much for gas? Or you could simply stop paying for things that you can easily get for free or reduced costs.
8 Easy Changes That Will Save Money and the Planet
25 Simple Ways to Save Money Today
4. Earn More Money
There are many different ways to earn more money than just asking your boss for a raise. You could start a new side hustle, begin using cashback apps when shopping, or sell items in your house, like unused clothes and furniture.
My Favorite Side Hustle App That Helped Me Earn $500
How to Earn Money While Traveling
4 Of the Best Food Delivery Apps to Work For
5. Stop Using Credit Card
If credit card debt is your problem, cut up your stinkin’ credit cards now! Do not let the misled “freedom” of credit cards tempt you any further. Just because you have credit doesn’t mean you should spend it. Try switching to debit cards or cash instead.
6. Apply Work Bonuses and Monetary Gifts to Debt
Did you recently get a bonus at work? Or maybe you had a birthday and received a few checks in the mail from the trusty grandparents. Instead of spending the money on a fancy dinner out, why not choose to put that money toward your debt immediately!
7. Delete Credit Card Info from Online Sites
Do you enjoy the ease of one-click purchases on Amazon? Remove your credit card information from your main online shopping culprits. That way when you are tempted to buy something you are forced to type in your information. It will give you the chance to second guess that purchase.
8. Delay Purchases
Feel like you need to buy new curtains because your current ones are a bit out of style? Why not delay your purchase and think about it for a few days, a week, a month, or more. The reevaluate the purchase to see if you still need it. Most times the desire to make that purchase will fade away.
9. Ask Friends or Family
Remember those cheerleaders that you told about your debt-free journey? Try asking them to lend you some money in order to pay off your interest accruing debt quicker. That way you can save money by not paying the interest on the loan. But do not forget to pay back that wonderful person or they may think twice about lending to you next time! When you’ve finally accomplished paying off all of your debts, why not get your cheerleaders a gift to thank them for all of their support!
More Resources on Debt Payoff Strategies
Here are some other great resources on debt payoff strategies.
There are many reasons for paying off your debt sooner. Here are some reasons to consider for paying off student loans early.
Trying to figure out if you should stop saving money and pay off your debt quicker? The choice is really up to you, but this article will help to give you something to think about.
Don’t wait to tackle your debt, here are things that you should know about debt in your 20s. Many people believe that consolidating your debt helps to pay it off faster, however, Dave Ramsey advises against consolidating debt.
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