How to Pay Off Debt Faster

How to Pay Off Debt Faster

Paying down your debt¹ faster may help you get a head start on your goals, whether it’s applying for new credit, saving on the cost of borrowing, or just reducing your debt. Here are some strategies to think about when considering repayment plans that could help you pay your debt off faster.

Tips for paying off debt

Pay more than the minimum.

Pay off your debt and save on interest by paying more than the minimum every month. The key is to make extra payments consistently so you can pay off your loan more quickly. Some lenders allow you to make an extra payment each month specifying that each extra payment goes toward the principal. Before you begin, check the terms of your loan to determine whether additional fees or prepayment penalties may apply.

Pay more than once a month.

Pay your credit card bills more than the required once per month. This may make it easier to stay on track of how much you owe. Paying your credit card bill regularly may also lower your balance/utilization ratio. The credit utilization ratio is the percentage of your total available credit that is currently being used. The utilization ratio is one of the components used by credit reporting agencies to calculate your credit score.

Pay off your most expensive loan first.

Your most expensive loan is the loan with the highest interest rate. By paying it off first, you’re reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost. This is sometimes referred to as the “avalanche method” of paying down debt.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance.  This method can help you build momentum as each balance is paid off.

Understand the pros and cons of this debt pay down strategy by reviewing the https://www.wellsfargo.com/goals-credit/smarter-credit/manage-your-debt/snowball-vs-avalanche-paydown/

Source: wellsfargo.com