How to pay off debt efficiently

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pay off debt

Debt can be crippling. Not only do debt obligations reduce the amount of income you can save, or invest, debt also increases your cost of living. That increased cost of living can add a lot of financial stress to your life. 

If you’re wondering how to start paying off debt efficiently, you’ve come to the right place. We’ll cover some of the tried and true practices below, and show you the best way to pay off debt. 

How to start paying down debt

First and foremost, don’t be intimidated. The longest journeys start with a single step. It doesn’t matter if you have a lot of debt, or a little, taking the first step is how you will accomplish this goal. 

Isolate all of your debt 

Believe it or not, many people aren’t aware of all the debt they have. They may have a credit card they forgot about or a past-due bill that wasn’t on their radar. The first thing you should do is isolate all of your debt and know exactly what you are responsible for. Common debt includes car payments, past due bills, credit cards, mortgages, and student loans. 

Understand the interest rate on your debt 

Debt comes at an interest rate. The higher the interest rate is, the more money you’ll owe back. Many times, people choose to start paying down their debt with the highest interest rate first, as that will save them the most money long term. 

Budget accordingly 

Now that you have an accurate picture of all the debt you have, and the interest rate for each debt obligation, you need to budget accordingly. Look at your monthly budget and find ways you can accelerate your debt payments. 

This may mean you stop eating out as much, or spend less money on clothes. If you’re able to cut back your spending by a few hundred dollars per month, you can accelerate how quickly you pay off all debt. Figuring out how much money you can allocate to specific debt obligations per month is known as a debt payment plan.

Consolidate your loans

One option that may help you pay off debt is to consolidate all of your loans. If you have $20,000 in student debt, a $10,000 debt obligation for your car, and a $3,000 credit card bill, you may be better off getting a personal loan for $33,000. 

If you find the right lending partner, the personal loan may have a lower interest rate. Instead of making three payments per month to the three different debt obligations, you’d make one payment per month to your personal loan. 

Refinance your debt

Depending on when your debt obligation started, you may have a high-interest rate. In the present day, the interest rate for borrowing money is at, or near, historic lows. If you’re able to save 1-3%+ in interest expense, you will naturally have more money in your pocket. That additional money can be used to accelerate your debt repayment. 

Is it okay to have some debt?

Even though debt can be crippling, all debt is not a bad thing. After all, how can one afford expensive items without a loan? Purchasing a house without a mortgage is nearly impossible. One of the key personal financial ratios to be mindful of is the debt-to-income ratio. 

Ideally, this ratio is as low as possible, as that would indicate the majority of your income can be saved or invested. All debt isn’t bad, but the debt that comes at a high-interest rate, or the debt that’s used to mask an underlying savings problem, is the debt that you need to avoid at all costs. 

How will paying down debt affect my credit score?

Paying off your debt could impact your credit score, and believe it or not, it doesn’t always improve it. In fact, it’s not uncommon for one’s credit score to take a slight dip if they pay off their debt. 

The reasoning behind this is simple. Banks determine creditworthiness when the borrower meets the promise. If a lender issued you a 5-year loan and you paid the loan back in 2 years instead of 5, you didn’t really honor your commitment. 

That said, it’s best to pay off debt than to fall behind on bills. Your credit score shouldn’t take a long-term negative impact from paying off early. 

Create a plan and use your resources 

To maximize your personal finances, you first need to be aware of all the debt obligations you have. Getting an accurate picture of what you owe will only help you get on the right course. Additionally, you need to be well aware of all the financial tools at your disposal that can help you better manage your money. Whether it’s a credit card that provides cash back or a bank account that works as hard as you do, there are countless little things you can do today to reshape your financial health.


What does paying down debt mean?

Paying off debt is simply when an individual looks at all their debt obligations and works on paying off the outstanding balance. Therefore, the individual will not be responsible for a monthly payment once the outstanding balance has been paid off.

Is it a good idea to pay off debt?

Generally speaking, most financial experts would agree paying off debt is a wise idea, especially debt that comes with a high-interest rate. However, not all debt is bad.

How long does it take to pay off all your debt?

It can take someone six months to pay off all of their debt, and it can take another person numerous years to pay off theirs. The timeline is entirely contingent on how much debt you owe and how much additional money you can pay each month. 

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