Three in four Americans have some form of personal debt, such as an auto loan, mortgage, or credit card balances, according to data from Northwestern Mutual. If you're juggling multiple balances, coming up with a repayment strategy can help you get out of debt faster.
"You want to make sure you have your own strategy," says Bola Sokunbi, author of "Clever Girl Finance." "You can't rely on the creditor to help you create your plan to debt freedom, because they don't necessarily want you to pay off your debt. They want you to stay in the cycle for as long as legally allowable."
Check out the video below for more of Sokunbi's advice on getting your debt under control.
One way to streamline your obligations is to consolidate a few balances into one new loan, such as a personal loan or a credit card balance transfer. Then you only have to keep track of making payments on your one debt, as opposed to multiple loans and credit cards. But before you borrow, read the terms carefully, she warns.
Often, you can get a low rate or no-interest introductory period, she says. But if you don't pay off your debt in that window of time, rates will jump up. With a credit card balance transfer, for example, any balance reamining after a rate expires would be subject to the card's regular rate. That's current an average of nearly 18%, according to CreditCards.com.
Make a list of your different debts, including balances and interest rates. Then see how these three popular methods might work for your situation:
- Snowball: This strategy has you focus on paying off your smallest balances first. It's the same logic as handling the easy things on your to-do list before the hard ones — and studies have found it can keep you on track with debt repayment. As you eliminate smaller balances, you'll have fewer payments to make each month, which can help free up more cash.
- Avalanche: With this method, you'll prioritize the debt with the highest interest rate first. This way, you save more money in interest payments over time and can knock out debt faster.
- Blizzard: This is a combination of both snowball and avalanche, meaning you alternate between paying off your smallest debt and paying off your debt with the highest interest rate.
There's no one "perfect" method, Beverly Harzog, author of "The Debt Escape Plan," told Grow earlier this year. "Whichever one works for you is the right choice," she says.
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