As the economy appears to slowly recover from the pandemic, we’re beginning to see evidence that Americans are actively seeking to pay down debt. Total outstanding credit card debt fell by a whopping $108 billion in 2020, according to the New York Federal Reserve.
Many borrowers use tools like a budgeting app that helps manage debt payments to quickly pay off their credit card balance. If you’re ready to take a more aggressive approach to pay off debt and get in control of your finances, consider tips that move the needle.
Here are five effective tips and strategies to get out of debt:
- Consolidate debt through a balance transfer
- Prioritize debt
- Refinance private student loans
- Negotiate for a lower interest rate
- Stop racking up more debt
If you would like to get a sense of what debt consolidation loan options are available to you, visit Credible to compare rates and lenders.
1. Debt consolidation and credit card refinancing
If you’re carrying a lot of credit card debt or high-interest debt, consolidating debt and credit card refinancing are two strategies that can help control debt payments to pay off debt quickly and save you money.
Debt consolidation allows you to combine all of your existing card balances into one low-interest personal loan. With one fixed monthly payment, this loan could simplify your life and your debt.
Credit card refinancing means using balance transfer credit cards to combat high interest rates. These cards usually offer 0% interest rates for an introductory period of up to 18 months. Paying down debt is easier when your interest rate is zero rather than the national average credit card rate of 16.28%.
2. Prioritize debt
When you’re paying down debt, it’s a good idea to follow a proven debt-repayment strategy, such as the debt avalanche method or the debt snowball method.
From a financial perspective, the debt avalanche strategy minimizes the amount of interest you pay and saves you the most money. That’s because you pay off your highest interest debts first, like your credit card balance, and work your way towards your accounts with the lowest interest.
The debt snowball method works by eliminating your debts in order from the smallest to the biggest. Many who thrive on momentum prefer this method because it delivers quick wins.
3. Refinance private student loans
According to a report by the credit bureau Experian, the average student debt per consumer is $38,792. That means student loans are the largest non-housing debt for Americans, considerably more than auto loans and personal loans, which stand at $19,703 and $16,458 per consumer, respectively.
A private student loan refinance may allow you to receive these benefits:
- Save money by getting a loan with a lower interest rate
- Create room in your budget by lowering your monthly payments
- Make finances easier to manage when you consolidate private student loans into one payment
But you should think twice before refinancing federal loans, as they typically have low interest rates and repayment plans already. Also, refinancing out of a federal loan may leave you ineligible for many government benefits, including loan forgiveness (for qualifying loans), income-driven repayments and loan deferments.
To explore your options, use an online tool like Credible to compare student loan refinance rates from multiple lenders at once.
4. Negotiate for a lower interest rate
While asking your creditors to lower your interest rate isn’t exactly a slam dunk, it happens more often than you might think. If you have excellent credit and a history of making payments on time, your creditors may look favorably upon your request.
Securing a lower interest rate usually requires a friendly – yet firm – negotiation with your creditor, who doesn’t want to lose money if you take your account elsewhere. For example, you might mention your preference is to keep your card balances where they are if the creditor can reduce your rate. If your card issuer believes lowering your interest rate means your credit card account will stay put, they may grant your request.
5. Stop racking up more debt
The first four strategies can help you save money and free up cash to pay off debt. It’s all for naught, however, if you are taking on new debt.
If you or your partner struggles to control your credit card spending, curb your temptation by storing all your cards in a secure yet hard-to-access location. Another precaution you might take is to freeze your credit reports for free with the three credit bureaus: Equifax, Experian and TransUnion. The freeze will prevent you from taking on new debt since lenders will be unable to access your credit report and issue you a new line of credit.
Remember, interest rates are low right now, making it the perfect time to pay off debt by using a balance transfer credit card, analyzing your repayment plans and refinancing private student loans into low-interest options. Visit Credible for the best personal loan rates for debt consolidation or to compare student loan refinancing rates.
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