Reduce Debt — 5 Debt Repayment Strategies That Could Change Your Life

Managing debt is becoming one of the most common parts of everyday life. According to data from Experian^®, the average American carries around $104,215 of debt across mortgages, auto loans, student loans, credit cards and other debt instruments.

These debt repayment strategies can help get you on the right track to building good credit and meeting your financial goals.

Strategy #1: Pay more than the minimum monthly payments

Paying more than the minimum monthly debt payments chips away a larger chunk of the principal portion of your debt, so you can save money on interest and speed up your debt payoff. It can work for all types of debt, from student loans, medical bills and personal loans to auto loans and credit card debt.

Even a small increase in your monthly payment can have a big impact. Start with what fits your budget—whether that’s $20 or $200 extra per month. The key is being consistent with those extra payments.

Strategy #2: Try the debt avalanche method

Want to save money on interest while paying down your debt? The debt avalanche method could be your answer. This strategy can help you tackle your highest-interest debts first, which means you’ll pay less in interest over time.

Here’s how to get started with the debt avalanche method:

1. Make a list of all your debts and their interest rates.
2. Put them in order, with your highest-interest rate debt at the top.
3. Pay the minimum on all your debts to stay current.
4. Put any extra money toward your highest-interest debt.
5. Once that debt is paid off, add what you were paying to the next highest-interest debt.

Think of this strategy as an avalanche gaining momentum. Each time you pay off a high-interest debt, you’ll have more money to put toward the next one. You’ll build momentum and save money along the way.

Strategy #3: Pay back debt with the snowball method

With the debt avalanche method, you put extra money toward your highest-interest debt. But with the debt snowball method, you put extra money toward your debt with the lowest balance first. Your momentum grows with each debt you pay off, like a rolling snowball.

Here’s how to employ the debt snowball method:

1. List all your debts from smallest to largest balance.
2. Make minimum payments on all your debts.
3. Put extra money toward your smallest debt until it’s paid off.
4. Use those extra funds to tackle your next-smallest debt.

This method is particularly effective for managing multiple debts, such as credit card balances, student loans and car loans. These small wins can help make a big difference in the long run.

Strategy #4: Transfer your balance to a lower-interest rate card

Higher interest rates can make it harder to pay down debt. Consider transferring your higher-interest credit card balance to a credit card with a 0% introductory APR on balance transfers. With more of your credit card payment going toward paying down your balance, this can help you pay off your debt faster.

Before you transfer your balance, make sure to check the transfer fee and how long the 0% introductory interest rate lasts. Most cards charge a small fee—usually 3% to 5% of the amount you’re transferring. Create a plan to pay off your balance before the promotional rate ends to get the most benefit from your transfer.

Strategy #5: Combine debts into a debt consolidation loan

If you’re juggling several debts, a debt consolidation loan may be the way to go. Putting all your high-interest debt payments into one low-rate consolidation loan can help make debt management easier.

Here are some advantages of debt consolidation loans:

• One simple monthly payment instead of multiple due dates
• You may have a lower interest rate than what you’re currently paying
• A clear payoff date so you can better plan your future
• Fixed monthly payments that can make budgeting easier

Before choosing this option, compare the interest rate on the lender’s consolidation loan to your current rates. Make sure the new monthly payment fits comfortably in your budget. And remember, the goal is to make managing your debt easier while saving money on interest.

How to choose a debt repayment strategy

The best strategy to pay off debt is one that fits your situation. Think about your mix of debts—credit cards, loans and other payments—and their interest rates. Then, look at your budget and be realistic about what you can commit each month. Pick the option that fits with what you can afford and keeps you motivated to pay down debt.

Here are some tips to help you choose a repayment strategy:

• If you can, pay a little extra on one or more of your monthly debt payments.
• If you have high-interest debts, the avalanche method might be your best choice.
• If you need to see quick progress to stay motivated, try the snowball method.
• If you have credit card debt, try transferring your balance to a low-interest card.
• If you’re juggling multiple payments, consolidation could make things simpler.

Remember, you can always adjust your approach as your situation changes. The key is picking a strategy you can stick with consistently until you reach your financial goal.

Navy Federal Credit Union can help you with debt management

Ready to take the next step toward becoming debt-free? Navy Federal’s financial counselors are here to help you create a personalized debt repayment plan that works for your situation. With personalized guidance and support, you can choose the right repayment strategy to help build your credit score and stay on track to meet your goals. Schedule a free consultation and put yourself on track to becoming debt-free.