Debt Management Strategies
Debt management involves strategies for handling and paying off debts efficiently. Effective debt management is crucial for achieving financial freedom and building wealth.
$15.56T
Total US consumer debt
$6,501
Average credit card debt
18.99%
Average credit card APR
Proven Debt Repayment Methods
Pay minimums on all debts, then attack highest interest rate first
Pros:
- Saves the most money on interest
- Mathematically optimal approach
- Faster overall debt freedom
Cons:
- May take longer to see first win
- Requires discipline and patience
Best for: Analytical, patient individuals
Pay minimums on all debts, then attack smallest balance first
Pros:
- Quick psychological wins
- Builds momentum and motivation
- Simplifies debt management
Cons:
- May pay more interest overall
- Not mathematically optimal
Best for: Those needing motivation boosts
Common Debt Types & Solutions
Credit Card Debt
APR: 18-25%Solution: Balance transfer to 0% APR card, aggressive payoff plan
Student Loans
APR: 4-7%Solution: Income-driven repayment, refinancing, forgiveness programs
Auto Loans
APR: 4-8%Solution: Extra principal payments, refinancing at lower rates
Mortgage
APR: 3-7%Solution: Biweekly payments, extra principal, refinancing
Personal Loans
APR: 6-36%Solution: Debt consolidation, negotiation, accelerated payment
Your Debt-Free Action Plan
Assess Your Debt
- List all debts with balances, rates, and minimums
- Calculate total debt and monthly obligations
- Check your credit report for accuracy
Create Your Strategy
- Choose avalanche or snowball method
- Set realistic payoff timeline
- Identify extra money for debt payments
Optimize & Negotiate
- Call creditors to negotiate lower rates
- Consider balance transfers or consolidation
- Automate minimum payments to avoid fees
Execute & Track
- Make consistent extra payments
- Track progress with debt thermometer
- Celebrate milestones along the way