Sometimes situations can leave us with more debt than we anticipated due to unexpected emergencies or life events. It can lead to difficulties with maintaining a budget and can even harm your score if you begin to miss minimum payments or have maxed out cards impacting how much available credit you have. A large debt can be intimidating, but there are multiple ways to manage this obstacle and come out debt-free using simple budgeting tools. As you start the 2021 year, here are some great ways to begin handling any outstanding debt you may have.


Begin with Budgeting

The first step involves reviewing a budget and seeing how to increase the surplus to pay down your debt faster. Borrowers can begin by reviewing expenses and cutting back to pay down debt at a faster pace.

For example, a borrower decides to cut back on eating out by $40 a month, sign up for a reduced cable bill that will save them $30 a month, and bike to work more often, saving money on transit by an estimated $30 monthly. They now have an extra $100 that they can apply to any outstanding debt.

This borrower has a $2,500 debt with a minimum payment of $100 that will take approximately two years to pay off ($2,400/$100 = 24 months). They can now add the $100 surplus to the minimum they usually pay towards this debt, and it will now only take one year to pay off ($2400/ ($100+$100) = 12 months). A few reductions in the budget help save significant time invested in paying down the debt.


Snowball vs. Avalanche

Two of the most common ways of paying down debt are the snowball method and the avalanche method. Many borrowers who find themselves owing several creditors have been able to utilize these methods to get out of debt strategically and within a short time frame.

The snowball method involves paying down the smallest debt first (debt 1). You would then take the minimum from that paid off debt and apply it to the second smallest debt (debt 2). The process would continue until, finally, you were able to include all minimum payments towards the most considerable debt. You could then figure out the timeline for each credit line to see when you would be debt-free.

On the other hand, the avalanche method involves paying the debt with the highest interest rate off first. Once you pay off the debt with the highest rate (debt A), you would move onto the debt (debt B) with the second-highest rate. Then take the minimum payment you were making to debt A, and apply it to debt B. This plan focuses more on paying down debt in a way that will take care of the most expensive lines of credit first. See the table below for clarification.


Snowball Method

Avalanche Method

Debt 1 = $500   

Min payment = $100

5 months to pay off.


After 5 months:

Debt 2 = $750   

Min payment = $150 + $100 = $250 

3 months to pay off      


After 8 months:

Debt 3   $1400  

min payment $150 + $150 +$100 = $350 

A final 4 months to pay off.


Timeline: 12 months to pay off $2650 of debt

Debt A: $1200 with highest APR.   

Min payment =$200

6 months to pay off.


After six months:

Debt B: $900 with middle APR.

Min payment = $100 + $200 = $300.

3 months to pay off


After 9 months

Debt C: $1000 with lowest APR.

Min payment = $100 + $100 +$200 = $300

A final 2.5 months to pay off


Timeline: Roughly 11.5 months to pay off $2200 of debts with the highest rates.


Borrowers can make a significant dent by utilizing budgeting and strategic methods to pay down debt fast. By freeing up your budget and using one of the two methods mentioned above, you can eventually use a larger monthly payment to your outstanding balances. Then it is just a matter of sticking to the plan until you find yourself debt-free!


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