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Celebrating Financial Independence — Top Strategies to Pay Down Debt
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While Americans are celebrating Independence Day, this summer may be a good opportunity to celebrate another type of freedom: financial independence.
If you’re carrying debt, the time to take action is now, says Matt Schulz, LendingTree chief credit analyst.
“Interest rates are rising, so credit card debt is only going to get more expensive in the coming months, and it’s up to you to seek ways to get that debt under control,” Schulz says.
Here are a few ways you can address those debts hanging over your head.
Apply for a 0% intro APR credit card
Transferring your debt to a 0% intro APR credit card can be a way for you to aggressively pay it down without accruing interest.
These types of credit card offers can range from 12 to 21 months. However, you’ll have to pay interest on the remaining balance after the promotional period ends.
“Make sure you understand the fees, deadlines, interest rates and other details that go along with these cards, though, because what you don’t know can cost you,” Schulz says.
Get a debt consolidation loan
If you’re juggling multiple credit card payments a month, losing track of due dates and where your money’s going can be easy. This is where a debt consolidation loan can come in handy.
Debt consolidation loans allow consumers to roll multiple debts into a single loan with one monthly payment at a fixed interest rate. That way, you won’t have to worry about managing multiple payments, and your to-do list can get a little bit shorter. Just make sure you find a lender that’ll offer you a lower interest rate than what you’re already paying.
And not only can debt consolidation loans make paying off credit card debt a bit easier, but taking out a personal loan to pay your credit cards can boost your credit score, according to a recent LendingTree study.
Utilize the debt avalanche or snowball methods
When aggressively paying off debt, there are two strategies you can implement depending on your financial situation and budget: debt avalanche and debt snowball.
With the debt avalanche method, you’ll focus on paying off debts with the highest APRs. This way, you can save money by cutting down on the accruing interest.
For example, if you have three credit cards with APRs of 15%, 17% and 20%, you’ll focus first on paying off the card with the 20% APR.
The debt snowball method involves targeting your smallest debts first and working your way up toward your largest balances.
Let’s say you have three credit cards with balances of $500, $800 and $1,000. With this method, you’ll put any extra income toward the credit card with the $500 balance. Once you pay that one off, you’ll move on to the $800 balance and so on.