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If you have debt, you’re not alone. Americans’ debt hit an all-time high of $13 trillion in 2017, surpassing the previous record from nearly a decade ago. While the majority of that number is composed of mortgage and home debt, $931 billion—the next highest category—is credit card debt.
Here are two simple methods you can use to help you pay off your debt so you can feel confident in your finances—and build the financial future that you want.
Method #1: The snowball method
Start by paying off the accounts with the smallest balances first, giving you the psychological boost of crossing completed debts off your list. As you pay off the smaller balances, you work through the hierarchy of debts until you’ve achieved your ultimate goal of eliminating debt.
Method #2: The debt avalanche
The second approach is to go after the debts with the highest interest rates first, so you pay the least amount of total interest costs over the course of your payback period.
Whichever method you choose, setting a few parameters on how to allocate your money can help you stay on track. We recommend that people spend no more than 30 percent of their take-home pay on housing and no more than 20 percent on debt as well as
vehicle payment should be included in your total debt.
No matter how you choose to manage your debts, maintaining a balance that allows you to make progress while paying for the things you need is a great first step on the way to finding your financial footing.
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