Ask Penny: I’m drowning in bills. How can I pay off my debt fast?

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In a Nutshell

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Hi Penny — With student loans, a car loan and credit cards, I have a lot of bills every month, and it feels as if I’m getting nowhere with my monthly payments. How can I pay off debt fast? —Drowning in Debt

Hi Drowning in Debt,

If your debt is making you feel overwhelmed, you have a lot of company! Credit card debt, in particular, can be frustrating because it might start small, but compounding interest can increase your balances and stretch out your payoff timeline. After a while, it can seem as if you’re barely making any headway.

Thinking about how you can pay off your debt more quickly is a great first step. When you speed up your payoff timeline — saving money on interest charges and making more progress reducing your balances — it’ll help reduce your stress. It all starts with understanding your budget and creating a debt payoff plan that fits your lifestyle.

Develop a realistic budget

Before you come up with a game plan, you’ll need to develop a budget that accounts for all the money you have coming in and going out. Doing this can help you better understand if you have enough income to cover all your expenses and — if so — how much you have left to put toward paying down debt. You might also decide you want to put a portion of your extra money into an emergency savings fund, making it less likely you’ll have to use a credit card (and rack up more debt) the next time you face unexpected costs.

As you do this, be real with yourself. Does the budget allow you to live within your means while you pay down your debt — or will you be stretching yourself so thin that you have to eat packaged ramen noodles every night? Creating an overly aggressive paydown plan might be motivating at first but could quickly become so discouraging that you’ll want to scrap it altogether.

Developing a budget can also help you identify any areas where you could cut back and use that money toward paying down debt instead. This is especially important if you don’t have much leftover cash — or any — after you pay bills. Maybe you can dine out less, cut your cable or some of your streaming services, or cancel your gym membership and sweat at home until your debt is paid off.

Make a plan to pay down your debt

Once you’ve developed your budget and have a sense of how much you can put toward your debt each month, it’s time to choose a debt payoff method.

Debt avalanche method

With the debt avalanche method, you make all your monthly debt payments, and use any extra money you have to pay off the debt with the highest interest rate first. This can help you save the most money.

Debt snowball method

Alternatively, you might use the debt snowball method if you need some motivation upfront. With this method, you use your extra money to pay off the smallest balance first, then move on to the next smallest debt. Keep in mind that while you will see progress more quickly with the snowball method, you could end up paying more in interest because you’re not focusing on your larger, often more expensive debt.

With both of these repayment strategies, you’ll pay more than the minimum payment toward the balance that you’re targeting, thus speeding up your debt payoff timeline.

Negotiate with your creditor

Lowering the interest rate on your accounts can also help you zero out your debt more quickly because, with a lower interest rate, more of your payment will go toward the principal balance. Call your credit card issuer and ask if it will reduce your annual percentage rate, or APR, on your credit card. You can also ask the lender to waive the annual fee, if there is one.

Your creditors may or may not do this for you, but the odds might be better if you’re a customer in good standing.

Debt consolidation

A debt consolidation loan or a balance transfer credit card might also help you save money in interest if you qualify for a lower interest rate than you’re paying on your current debt. Just watch out for any loan or balance transfer fees that could eat into your savings. 

Student loan refinance or repayment plan

As for your student loans, you might be able to refinance the debt to a shorter term or lower interest rate. This may help you pay off the debt faster and save on the total cost of borrowing.

But think twice before refinancing federal loans to private ones. You may lose important borrower benefits, such as an option for income-based repayment, in the process. If you’re carrying high balances in federal student debt, you might consider changing your payment plan so that it better fits your budget. Then you can direct some of that money toward your other debt.

Keep yourself on the path to debt payoff

As you pay down your debt, consider setting milestones along the way to keep you motivated. Use a portion of any windfalls, like a tax refund or work bonus, to treat yourself every time you hit one of these goals. For instance, you might go out with friends or buy yourself a new book once you pay off a certain amount of your balance. This can also help you avoid debt fatigue — those feelings of resentment and apathy you might develop as you work hard to pay down your debt and temporarily cut back on certain things that you enjoy. Best of luck to you!

About the author: Penny is Credit Karma’s conversation maven. If you’re a Credit Karma member and have had a question about your financial situation, you might have chatted with Penny about it in the Credit Karma app. Now, Penny wants… Read more.