Repaying Debt

Snowball
Paying off debt using the snowball method means that you focus on paying off your lowest dollar amount debt first, then move on to the next largest dollar amount debt, and so on until you are debt free! The snowball method is effective because it gives you the feeling of being accomplished and victorious each time you pay off a debt. This helps keep you motivated to pay off your debts. The potential down-fall of the snowball method is that you may end up paying more in interest, because your lowest dollar amount debt may not be your highest interest debt, allowing more interest to accrue on larger debts while you focus on paying off the small debts.

Avalanche
The avalanche method refers to paying off your debt in order from highest interest rate debt to lowest interest rate debt regardless of the amount of the debt. This method tends to help you pay the least amount of interest when paying off your debts. The avalanche method, however, can be challenging for many people to stick to because you may not get the satisfactory victory for a while. Your largest interest debt may be one of your biggest debts, meaning you may not pay off your first debt for a long time, and this tends to make people lose motivation as they begin to feel like their efforts are amounting to nothing.

Debt Consolidation
Debt consolidation is a helpful repayment method for your debt because it takes multiple different debts, pays them off, and then consolidates them into one new loan. Paying on multiple loans a month can be overwhelming, with remembering different due dates, payment amounts, and the constant reminder of how many different debts you have. Debt consolidation loans provide you a way to pay off most, if not all of your debt, with one single monthly payment on a loan that could also provide a lower interest rate, especially when consolidating credit card debt. It is important to understand, however, that debt consolidations do not get to the initial cause of accruing so much debt. Debt consolidations are a helpful tool, but you also will need to take a look at your spending habits and make some adjustments so that you don't wind up in a worse position than you were in before getting a debt consolidation.

Secured Debt
A secured debt simply means that the debt is backed by collateral that the lender can repossess if the borrower defaults on payments. Common types of collateral used to secure a debt are houses, automobiles, and cash.

Unsecured Debt
Unsecured debt is a type of debt that is not backed by any collateral. Unsecured loans typically come with higher interest rates and typically require a good credit score to get approved because they are a riskier loan for lenders. Common types of unsecured debt are most personal loans, credit cards, and student loans.

Revolving Debt
Revolving debt is debt that allows you to draw off of a line of credit as needed as long as the line is open and you haven't hit your credit limit. Revolving debt can be either secured or unsecured. Payments for revolving lines of credit usually are based off the amount of money you have used on the credit line. This can result in inconsistent payment amounts from month to month. Common types of revolving credit include credit cards and home equity lines of credit.

Installment Debt
Installment debt is debt that is provided to the borrower as a single lump sum of money, typically used for a specific purpose (like a vehicle or a house), and repaid in installments, or payments that are generally the same amount each month until the total amount borrowed is paid off. Like revolving debt, installment debt can be either secured or unsecured.

Stop Opening New Lines
Opening new lines of credit, especially when you're in debt, can provide a new way for you to rack up even more debt with the temptation of having a large amount of money suddenly available to use. Opening new lines of credit will only hurt you more and make getting out of debt even harder.

Stop Using Credit Cards
It is easy to get into debt quickly with credit cards. You do not see the immediate impact of your purchases in your bank account, and it is easy to just say you'll pay it later. Unfortunately for some people, there are more purchases than payments being made on credit cards, and they wind up finding themselves with thousands of dollars of credit card debt. Take your credit cards out of your wallet. Either cut them up or put them in a safe place where you don't have easy access to them for those impulse buys.

Pick Up a Side Hustle
Getting a second job, or picking up a side hustle, can be a great way to earn a little extra money to pay down some of your debt. Have friends with kids you're willing to babysit? Have a skill that you can offer for a little extra cash? Have some down time where you could do deliveries? Even selling stuff online that you never use can be a great way to make some extra cash. We understand that working a second job can be exhausting. If that's the case, try making it just a short-term thing. Any extra money you can get is just putting you that much closer to being debt free.

Don't Give Up
Whatever method you use for paying off your debt, the most important thing is to not give up. Paying off debt can be extremely discouraging because it takes a long time. Because of that, a lot of people struggle with staying on track. If you need help, reach out to your financial institution who can help you come up with a plan!