Plan To Pay More Than The Minimum Payment
Go through your budget and decide how much extra you can put toward your debt. Paying more than the minimum will save you money on interest and help you get out of debt faster.
Let’s say you have a $15,000 balance on a credit card with a 17% interest rate and a $450 minimum payment. If you only make the minimum payment, it will take you almost four years to repay the balance. You’ll pay about $5,500 in total interest.
If you paid $550 a month, or $100 more than the minimum, you could repay the debt in less than three years and pay only $4,100 in total interest.
There are a couple strategies to use when paying more than the minimum payment each month:
The Debt Snowball Method
The Debt Snowball Method involves making the minimum payment on all your debts except for the smallest one. Each month, you’ll pay as much as you can toward the smallest debt. Once the first debt is paid off, you’ll apply all the payments from it to the next smallest debt. By “snowballing” payments toward your smallest debt, you’ll eliminate it quickly and move on to the next smallest debt while paying minimum payments on the rest.
Let’s say you have a $5,000 credit card balance, a $1,000 auto loan and $10,000 in student loans. With the debt snowball method, you would focus on paying off the auto loan first, because it has the lowest total balance.
The debt snowball method can help motivate you to focus on one debt at a time instead of multiple, helping you build momentum and stay on track.
