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Debt is a necessary part of everyday life for many of us. When used correctly, debt can open the door to education, transportation, housing and even help us achieve our financial dreams by building credit. When used incorrectly, debt is a leading contributor to ulcers, divorce and hurts work productivity in America. If you have debt, and you’re discouraged, don’t worry - you’re not alone. Here are three steps to paying your debt down faster so you can live your best life.
Create a list of what you owe.
Nothing is more stressful and ineffective than keeping track of your debts, bills, and payment schedules in your head. Like a cluttered office or home, it’s hard to function when things aren’t organized to be easy to find when you need them. Start by collecting all of the information about your debt and get organized. It may be overwhelming to look at it all at once but this is a necessary first step to making better decisions and moving toward paying your debt down. Put it in a format that makes sense to you; here's a debt management worksheet
which could be a good place to start. When compiling your debt list, don’t forget to include the total debt amount, interest rate and monthly payment amount and due date. If it’s helpful for you, feel free to add a column for the total number of monthly payments left and a section to write out your specific strategy for that debt.
Create a strategy that's effective and keeps you motivated.
Without this, a plan to simply "pay down debt" can be like any other New Year's resolution - we build it with every intention of sticking to it but then lose sight of the goal through the hustle and bustle of every day life. There are a variety of strategies you can employ to pay down your debt and stay focused and motivated throughout the process. Here are a few tried and true plans; take a look and decide what you think fits you best.
Celebrate the wins along the way.
- Snowball - Target your smallest debt balance first. When you pay it off, use that money towards your next smallest debt and so on. If you have trouble staying motivated in paying down your debt, a snowball repayment strategy may be your best bet. You’ll feel momentum building with each new debt you pay off and see your debt list shrink. Make sure that you are at least paying the minimum balance on all of your debt, though, even if they are low on your snowball priority list.
- Powerpay - Target your debt with the highest interest rate and when you’ve paid it off move on to your next highest debt, using the payment from your first paid of debt to "powerpay" the second one down. This looks a lot like the snowball strategy, with the only difference being your priority in paying less interest. As always, make sure you’re paying at least the minimum balance on all debt to stay current and not impact your credit score.
- Get Help - This may not seem like a strategy but it definitely is a helpful way to tackle your debt list if you're overwhelmed. You may need some help from a professional debt counselor to get a handle on where to start and support in best addressing your debt. Firefly has a unique partnership with LSS Financial Counseling that allows members up to four free appointments with a financial counselor who can coach you towards your best option.
After organizing what you owe and creating a strategy to pay it down, don’t forget to celebrate the wins along the way - no matter how small. Find a reward that motivates you and take a few minutes to bask in your success before taking on the next challenge.
You can do this! And Firefly is here to help.