1. Create a budget to know your income, expenses, and cash flow.
If you didn’t do this earlier, now’s the time. You can look back at the previous article from our Financial Wellness Journey for a complete guide to tracking your spending and creating a budget.
2. Organize your debt.
Before you get started, determine how much debt you have. List every credit card you own that has an outstanding balance and jot down the amount owed to each. Next, list the interest rate of each card. Do this for any other fixed installment loan debt you have, as well. These numbers will help you build a debt-payoff plan as described in the steps below. You can also add up the amounts owed on each account to reach your total outstanding debt amount.
| Debt | Interest Rate | Amount Owed |
|---|
Credit Cards |
Discover® | 24.1% | $2,000 |
American Express® | 18.9% | $1,500 |
Visa® | 22.4% | $1,200 |
Personal Loans |
First Bank of Indiana | 15.00% | $2,300 |
Parent Plus Loan | 11.2% | $3,400 |
| Student Loans |
| Parent Plus Loan | 11.2% | $3,400 |
Total Debt | $10,400 |
3. Trim non-essential expenses and/or generate more income to have as much cash flow as you can.
By trimming your spending in one budget category and channeling that money toward paying down your debt, you can maximize your debt payments. You can also find ways to pad your pocket with extra cash for your payments, such as freelancing for hire or selling your creations on a platform, like Etsy, if you’re the crafty type.
4. Choose your debt-crushing method.
There are two main methods for paying down debt, called the Snowball or Avalanche methods:
The Snowball Method can keep you motivated by paying off your smallest debts first. Although its important to keep making the minimum payments on your other debts.
OR
The Avalanche Method can save you the most money by paying off debt with the highest interest rate first and moving on to the next-highest rate until all debts are paid off, while maintaining minimum payments on the rest of your debt.
