Paying Down Debt to Help You Save
Making the decision to pay down debt can leave you with a mix of emotions. You may feel good about choosing to take concrete steps to pay off your credit cards, auto loans, student loans, or other debt balances you may carry. On the other hand, you may feel less positive about the amount of money you are directing into a savings account. Don’t beat yourself up! In the long run, paying down your debt is a form of saving. As you pay off your debt, you are freeing up money in your budget which allows you to direct those funds toward saving for something else that’s important to you. We’re here to help you find the best strategy for paying down your debt that best aligns with your personal situation and boosts your financial confidence to keep working toward your savings goals.
Calculate How Much Debt You Owe
The first step in deciding how you plan to pay down your debt is knowing exactly how much debt you owe overall. Having a clear understanding of the numbers will empower you to choose a repayment plan that actually works. You can start by compiling a spreadsheet or take advantage of a budgeting app that will compile the information for you. After determining your total balances owed, it’s important to list out due dates for each payment, the minimum monthly payment amount, and the interest rate of each loan. After you have all of this information, you can move forward with choosing the best method for paying down your debt.
Pick the Best Method
The next step in taking control of your debt is picking the best repayment method that works for you and your current financial situation. There are several methods to choose from, but here are a few to get you started:
- Snowball Method – This method focuses on the overall balance of each loan. You make the minimum payment on all your loans except the one with the smallest balance. With this loan, you put as much money as you can toward it and once it’s completely paid off, you allocate that money to the next smallest balance. The idea is to pay off your loans from the smallest to the largest balances.
- Avalanche Method – This method focuses on the interest rates of each loan. Like the snowball method, you make the minimum payment on all of your loans, except this time, you make additional payments on the loan with the highest interest rate. By paying off the debt with the highest interest rate first, you reduce the overall amount of money you end up paying in interest, thus saving you more money over time.
- Debt Consolidation/Balance Transfer – If you find yourself stuck with several high interest bearing balances and are having trouble deciding which one to pay off first, a debt consolidation loan or balance transfer may be the best move for you. Combining your multiple balances into one lump sum makes it easier to not only keep track of your monthly payments, but could also land you with a lower interest rate and free up cash in your monthly budget to go towards your savings.
The Bottom Line
There are many different strategies and options to choose from when paying off your debt. It’s important to do research on the different approaches and find the best method for your needs. Stop letting debt control you and keep you from reaching your savings goals. If you’re looking to pay down your debt and grow your savings, we are here to help! You can apply for a balance transfer through Digital Banking, over the phone, or by making an appointment with one of our friendly member service representatives who are waiting to help you in your next steps. Don’t wait until you’re drowning in debt, get started on your path to financial freedom today.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.