How to create a debt payoff plan?
As aggravating as it may seem to focus on paying off student loans and credit card balances, it’s a needed skill. Here are some methods that’ll help boost your motivation and encourage you to wipe the slate clean and reduce overall debt.
• Debt Snowball Method: This method has you start small and work your way up, meaning, though you continue making monthly payments on all your debt, you’ll use any extra funds to make additional payments on your smallest debt. After the smallest debt is paid off, you’ll roll those funds over to help pay off the next smallest debt and so on until all your debt is taken care of.
• Debt Avalanche Method: Everyone’s heard of an avalanche—it wrecks everything in its path. For this method, you’ll continue making minimum payments on your debt and use any extra funds to target the debt with the highest interest rate, then roll those funds into the next highest and the next.
Each of these methods is useful in its own way, but ultimately everyone chooses to pay their debt down differently. You can always learn how to customize and implement a payoff plan specific to you by exploring more debt payoff strategies.
Debt Payoff Formula
i=annual credit card interest rate
n=the number of years you want to pay your credit card off.
How long will it take to pay off a debt?
Though there is no perfect payoff term, a good goal to set for debt payoff is 36 months. But everyone’s situation is different and the only thing that matters is you try paying off your debt quickly—the sooner, the better. Making extra payments or paying more than what you owe each month are two great ways to avoid excessive interest.
In fact, in some cases, only paying the minimum does little for your debt except paying the interest owed on the debt.
Let’s say you owe $5,000 in credit card debt with an APR—annual percentage rate—or interest rate of 15%. If you carry a steady month-to-month balance, you’ll owe $750 in interest by the end of one year. This means roughly $62.50 of your payment each month will go toward interest. And, if you only pay the minimum owed that month—let’s say it’s $75.00, then it’s likely you’re only paying off interest which won’t get you anywhere fast.
So, though an early debt payoff goal might seem tricky, with a little discipline, it’s possible. Adopting the habit of exploring your options and sticking to your motives is the best way to increase your debt payoff opportunities.