Many people find themselves owing money, whether it’s a credit card, car payment or student loan. And while debt is common, there are compelling reasons to reduce and eliminate it.
The Many Costs of Debt
For starters, there’s the interest. The longer you take to pay down your balances, the more interest you rack up, which adds to the cost of your original purchase. Spending your cash on balance minimums can also prevent you from building up significant financial reserves, like emergency savings.
Debt can also get in the way of your housing goals. Lenders may hesitate to award you a mortgage if your debt-to-income ratio is too high. Debt can also hurt your credit score, which is a metric landlords use to screen tenants.
Strategies to Pay It Down
The good news is there are practical ways to reduce what you owe. Start by tallying up all of your debts and tracking your monthly spending to identify areas for cutbacks. Then create a budget. From there, you could follow one of two popular approaches for paying things down:
- With the “snowball method,” you chip away at your smallest debt first and make minimum payments on everything else. Then move to the next largest debt as you pay things off.
- The “avalanche method” has you focus on paying the balance with the highest interest rate first, regardless of how much you owe, and working your way down from there.
There are pros and cons to each strategy. And regardless of which approach you take, you may slip up a time or two; don’t let that deter you. Just keep your focus on why you want to eliminate your debt and be sure to celebrate your small victories along the way.