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How to Pay Off Debt

October 31, 2019 7 mins

Do you feel like you’re stuck in debt that you don’t know how you’re ever going to pay off? When you feel like that, it’s hard to experience financial well-being. We care about providing you with the tools and resources you need to make healthy financial decisions – and we’re glad you’re reading this. If you want to talk confidentially one-on-one about your debt, we welcome you to set up an appointment to talk. We know life’s busy, which is why we’ve made it easy for you to set up an appointment to talk to us.

Read on to learn some strategies and habits that will help you pay off your debt faster – and then talk to us if you want more help.

Get started with a budget

1. Create a budget

Creating a budget (if you don’t have one already) is the first step towards almost any financial goal. To get started, check out our articles on determining your expenses and creating a budget.

Begin paying off your debt

2. Pay off your most expensive debts first

Make a list of all your debts – credit cards, student loans, unsecured loans, car loans, mortgages, etc. Write down the interest rate you’re paying for each, as well as how much you owe for each one. If you can afford the minimum payments on all your debts – that’s great. Whatever you can afford to pay in excess of the minimum – begin paying that debt first. For example, if you have a student loan at 7%, a car payment at 3%, and a credit card at 12%, pay at least the monthly minimums on all loans and then use all the other discretionary money you have to pay the credit card.

3. Pay more than the minimum balance

It’s important to pay at least the minimum required for things like car loans and mortgages – that way you will have a car to drive and a house to live in. Beyond that, you must pay more than the minimum balance required if you want to get out of debt. Do the exercise described above to begin paying off your most expensive loan first. One trick to make this easier is to make weekly (instead of monthly) payments.

4. Take advantage of Patelco’s balance transfers

As a credit union, we exist to further your financial well-being. That’s why we offer great rates – likely lower than what you’re paying on other cards. We also offer something that most banks and other credit unions do not – zero balance transfer fees. When you transfer your credit card balance to a card with a lower interest rate (without paying a fee for the transfer!) you could save hundreds or thousands of dollars off the life of the loan payoff.

5. Put any work bonuses, inheritances, or gifts towards debt

If you get a job bonus at the end of the year, a Christmas bonus, an inheritance, or a generous cash gift – don’t immediately blow it on a shopping spree, a fancy car or a luxury vacation. Remember that large sums of money don’t come around very often – and the benefit you’ll get from paying off debt is huge. First, you’ll save on the interest you would be paying if you kept paying the debt off for many months or years instead of paying it off right now. Second – and even more importantly – you’ll increase your sense of well-being because you know you’re making the smart decision, and because you’ll have less debt to worry about in the future.

6. Sell unwanted gifts, old electronics and household items

Most of us probably have things lying around at home that we don’t really need or want. Have an old iPhone? A gift certificate to a restaurant you don’t really like? A bookshelf that’s collecting dust in the garage? All of these can be turned into cash, via a garage sale or by selling them online. There’s a lot of apps out there now that can helps you sell something locally (like the bookshelf) or online (like the iPhone). And there’s websites that will buy gift cards from you. You won’t get the face value of the gift card – but $75 towards your debt is probably more valuable than a $100 meal paid for by a gift card.

If you’re deeply in debt, whatever rewards you are earning cannot make up for the interest you’re paying on your credit card debt – or compensate for the peace of mind you lose due to debt.”

Spend smarter

7. Stop using credit cards for monthly expenses

Really want to stop accumulating debt? Remove all your credit cards from your wallet and leave them at home when you go shopping. The fact that you earn rewards with credit card purchases is not a good enough reason to use credit cards. If you’re deeply in debt, whatever rewards you are earning cannot make up for the interest you’re paying on your credit card debt – or compensate for the peace of mind you lose due to debt. Switch to using a debit card for monthly expenses.

8. Remove your credit cards from online stores

If you do a lot of online shopping, you’ve probably stored some of your credit cards online to make checkout faster – many computer browsers and smartphones also store your card information to make checkout easier. If you’re trying to control debt that’s exactly what you don’t want: easy access to keep increasing your credit card balance. If you still plan to shop online, switch to using a debit card, which will still give you the ease of checkout but won’t encourage you to go into further debt.

9. Develop new habits

Maybe it was a one-time bad judgment call that landed you in your debt, but it’s more likely that it was actually your day-to-day habits that did it. Consider your money management  – how you spend money each day, week and month.

Do you really need your daily latte? Consider this: save $20 Monday through Friday by getting coffee at home. Then go to your local coffee shop on Saturday and enjoy a $4 latte – without having to rush to work. You’ll end up with an extra $16 a week. That may not sound like much, but if you’re in debt, that translates to an extra $832 per year you can use towards payments. Keep in mind that whatever you’re paying off translates into saving on interest. So forgoing that weekday latte could end up being worth more than $1000 a year if paid on a high-interest credit card!

10. Reward yourself appropriately

If you feel like your monthly payments are a burden or a punishment, you won’t have a sense of financial well-being – and you might get discouraged and lose motivation. The key idea is for rewards to be appropriate. Consider the example above – giving up a weekday latte but enjoying one on Saturday mornings. That kind of reward would be a weekly reminder that you’re making progress. You should also consider no- and low-cost rewards – like binging on a new season of TV show after you pay off a set amount of your credit card.

If you’re reaching a big milestone – like paying off a car or completely getting rid of student debt, consider a bigger reward that still fits in with your financial goals. For example, taking a couple days of work for an extended weekend camping trip, instead of flying out of the country for an expensive vacation.


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