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For most of my early adult life I was focused on aggressively paying down my student loans. Looking back this probably was not the best approach to take. Could I do it again, I would have invested more into savings earlier. But c’est la vie. You can learn from my mistakes!
Many of us have various sources of debt.
Car loans, Credit card(s), student loans, mortgages. It’s almost inevitable that we will have some sort of debt. But, getting a handle on your consumer debt is one of the best things you can do to set yourself up for financial success.
If you followed my previous posts and have calculated your net worth, you should have a clear picture on where you stand with your debt. An additional item to write down next to each debt is the interest rate you are paying on each one.
There are a few main approaches to destroying your debt, but regardless, you need to be paying the minimum payments on each debt your have each month. This is non-negotiable!
Once have your minimum monthly payments covered in your budget each month, you can choose which strategy you want to utilize:
- Snowball Method: Pay off the smallest debt first, and move on to the next smallest and so on.
- Avalanche: Pay off the debt with the highest Interest rate first and then the second highest and so on.
- Annoyance level method: Attach the one that bothers you the most first ,then choose a strategy above.
Learning more about Debt Snowball vs. Debt Avalanche can help you get organized and start destroying your debt. How aggressive you want to get is up to you, but it’s always a good idea to keep some money to do a small bit of saving or investing at the same time to take advantage of compound interest that builds on your savings over time.
For more content like this head to the Savings and Debt section of the blog.