Debt can post a serious roadblock to getting ahead financially. U.S. household debt set a new high at $13.21 trillion in 2018, with those under 35 tallying $67,400 in debt, on average, and those 34-44 hitting $133,100. If one of your New Year's resolutions is overcoming debt, these tips can help with paying it down:
1. Choose a Debt Repayment Strategy There are two primary approaches to consider for debt management: the debt snowball or the debt avalanche. Both involve making a list of all your debts, including the interest rate for each one. You then choose one debt to pay down as much as you can each month, while paying the minimum due on the remaining debts. Using the snowball method, you'd pay off your debts from the lowest balance to highest. With the avalanche method, you'd pay off debt from the highest APR to the lowest. When paying down debt, decide what method works best for you. The snowball route can help you pay off smaller debts faster, while the avalanche can save money on interest charges.
2. Make Debt Less Expensive High interest rates can slow down your debt payoff progress. If you have high interest debt, making it more affordable is one of the keys to paying it off. For credit card debt, that may be as simple as transferring balances to a new card with a 0% introductory APR. Just be mindful of the balance transfer fee and the length of the promotional period before the regular APR kicks in. For student loans, car loans or a mortgage, refinancing could be your best bet. Refinancing means taking out a new loan at a lower interest rate to replace an existing loan. Keep in mind that you'll need good credit to get the best rates. Fair Isaac, which generates FICO credit scores, recently made changes to its scoring algorithm which could add — or subtract — points from your score. If you haven't checked your score recently, you may want to do so, ahead of applying for a refinance loan to combine and pay down debt.
3. Tap Free Debt Repayment Tools Many online tools are available to help guide your debt payoff plans. Here are some of the best free options for managing debt:
- Unbury.me: Debt calculator that lets you run different scenarios on debt payoff to see how much interest you could save and how long it would take to get out of debt.
- Mint: Budgeting and spending tracker app can help manage your overall financial picture. You can also use the app to create debt payoff goals and track your progress.
- Debt Payoff Assistant: App that can work in conjunction with the debt snowball method. You can enter all the details for each debt and get visual tools to help you monitor your progress.
4. Leverage Your Tax Refund The Tax Cuts and Jobs Act of 2017 instituted a number of tax changes, some of which were designed to help taxpayers net a larger refund. In 2019, the average tax refund issued was $2,869. If you'd rather have more money in your paycheck throughout the year that you could use to pay off debt, you can contact your payroll department to adjust your W-4 withholding for the year. If you typically receive a refund at tax time, it's likely because you're withholding too much from each paycheck.
5. Earn Extra Money for Debt Repayment Along with your tax refund, it's also helpful to look for other ways to find more money to pay down debt. For example, you could:
- Increase your hours at work if you're paid hourly
- Take on a part-time job
- Negotiate a pay raise or promotion
- Start a side hustle or business
If these options aren't realistic, take advantage of found money and windfalls to pay down debt. For example, cash birthday gifts, rebates and spare change can all be used to chip away at your balances. When paying down debt, it helps to make major financial moves when you can but even small amounts of extra money can make a big difference over time.
All content provided in this blog is supplied by Rebecca Lake and is for informational purposes only. Barclays takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.