Get Out of Debt
Publish date: 2/1/2021
A lot of people are in debt. Colorado Credit Union is here to you learn how to manage and get out of debt. Financial debt can be personal loans, credit cards, auto loans, student loans and more.
When examining your debt, pay close attention to the total amount you owe, the interest rate and the monthly payment. It may be a good idea to shop around to make sure you are getting a low interest rate which may lead to re-financing or consolidating debt. Call your financial institution to see what your options are.
The time it takes to pay off your debt will vary depending on the total that needs to be repaid and how much you can contribute per month. Be sure to include the debt payment amount per month into your budget so you aren’t adding to your debt amounts. Making consistent payments and avoiding adding to your existing debt will help ensure that you get out of debt as quickly as possible.
Debt is tricky, because there is no “one size fits all” approach to getting out of debt. Each approach will be personalized to you. Common strategies, though, include the debt snowball or debt avalanche methods.
The debt snowball method is where you make the minimum payment on each of your debts while paying as much as you’re able to on the smallest debt until it’s paid off. When the smallest debt is paid off, take that minimum payment and extra amount and add it to the next smallest debt and so on until all your debts are paid off.
The debt avalanche is where you focus on the debt that has the highest interest rate. Make the minimum payments on all debts except one-the highest interest rate debt. Make a payment more than the minimum to decrease the overall balance, paying less interest over time.
So which one do you choose? Mathematically, the avalanche is better- or never worse than the snowball. But there are advantages to the snowball method in that it feels great to eliminate that first debt. It feels like progress is being made. The method you choose is entirely up to your preference.
To learn more about what will work best for you, use the Get out of Debt Coach. The coach will calculate both methods to help make a decision that is best for your situation.