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Pay Down My Debt

The Ultimate Guide To Get Out Of Debt

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What does the American dream look like to you? Does it include a home of your own, a car or two in the driveway and a career that helps you feel happy and fulfilled? Maybe you want or have children, too, regardless of how much it costs to raise them.

Unfortunately, pursuing these dreams can be a costly endeavor. A car and a house, for example, may each require a loan. If you want both, the cumulative effect of those loans can be devastating.

Consider the following debt statistics:

  • Average student loan debt for Class of 2017 graduates hit $39,400, according to Student Loan Hero, another LendingTree-owned website.
  • Americans have paid banks $104 billion in credit card interest and fees so far in 2018, representing a 35% increase from just five years ago.
  • The average new car loan among borrowers came with a payment of $525 a month in the second quarter of 2018, according to Experian’s State of the Automotive Finance Market report. And the bulk of new car loans (about 73%) were for 61 to 84 months long.

High debt could make it difficult to realize your financial dreams. But there are plenty of ways to borrow less, pay off debt you already owe and gain more financial freedom.

Here’s a deep dive into the kinds of debt you may face, as well as practical solutions to help you organize, reduce or pay off debt that stands in your way.

The difference between ‘good’ and ‘bad’ debt

Not all debt is created equal. There is debt that can help you build wealth, and there is debt that prevents you from building wealth. It’s important to know how to identify which is which. Consider the following.

Tony Liddle, a Wisconsin financial adviser who works for Prosper Wealth Management, said it’s important to note the difference between good and bad debt so that you can focus your debt payoff efforts on the debts that matter most.

Generally speaking, a mortgage for a home you live in is good debt, he said. Your home may go up in value, and everyone needs a place to live. It is also difficult and time-consuming to save up the money to pay for a home in cash, especially in areas of the country where real estate is pricey. So taking out a home loan may be necessary.

But there’s a limit to good debt, since it’s far too easy to borrow more than you can afford. There’s a fine line for sure, but it’s possible to buy more house than you need and wind up with a mortgage payment you can’t afford.

The same can be said for car loans, Liddle said. You may need a car to get to work, but you may not need to borrow the maximum a lender offers.

Student loans can also run in the same vein. Borrowing money to earn a college degree can pay off in spades over the course of your career, but borrowing more than you need to graduate isn’t always smart.

Regardless, it’s important to prioritize your debt so your money is going where it will count the most.

Which debt should you tackle first?

Financial adviser Don Roork, of AssetDynamics Wealth Management and Wisdom for the Wealthy, said consumers should focus on paying off unsecured debt first. This includes debt such as credit cards and personal loans. That’s because unsecured debt can make it difficult to build wealth, but it’s also because it tends to come with higher interest rates. The average credit card currently has an APR of 15.5%, for example.

Here’s one way you may want to prioritize your debt repayment:

  • Pay off unsecured debt first, particularly credit card debt with high interest rates.
  • Focus on personal loans and other unsecured debt as a secondary priority.
  • Tackle auto loan debt since cars depreciate quickly.
  • Leave mortgage debt and student loans for last since they tend to come with low interest rates.

Managing your credit card debt

While credit cards can be convenient to use, the exorbitant interest rates they charge can make it difficult to repay balances over time. We already mentioned how the average credit card interest rate is 15.5%, but many credit cards charge even higher rates — particularly to borrowers with poor or fair credit.

Liddle also noted that the gimmicks that credit card issuers come up with can make it hard to avoid them. Some cards offer rewards for every dollar you spend, for example. Offers for 0% APR could also tempt you into spending more than you planned.

If you do wind up with credit card debt that you’re struggling to repay, Liddle said it can interrupt your life in too many ways to count.

“You can’t advance your financial life with investing when you’re throwing all your money into debt and interest payments,” he said. And if you keep making the minimum payment, you’re mostly just paying interest and avoiding real progress. “You’re basically just treading water at that point, which will never help you get out of debt.”

If you want to pay off credit card debt, several strategies can help.

Consider a balance transfer credit card

Some credit cards offer 0% APR on balance transfers for a limited time — usually between 12 and 21 months. These cards let you avoid interest payments during that time, which can expedite your debt payoff process.

Liddle said balance transfer offers can be valuable tools if used strategically, but you should beware of balance transfer fees that can be as high as 5% of your balance. Also, note that your introductory APR only lasts for a while before resetting to a much higher rate.

You can also look for a balance transfer card that doesn’t charge any balance transfer fees. Nick Clements of MagnifyMoney said this option is best for consumers with relatively small amounts of debt ($5,000 or below) that they can pay off quickly.

Negotiate with your creditors

Mike Sullivan, a personal finance consultant with nonprofit credit counseling agency Take Charge America, said it’s possible to negotiate with your creditors if you’re falling behind on your payments.

“Most creditors have hardship programs that extend payments and reduce interest rates but do not reduce balances owed,” Sullivan said. You could negotiate down your interest rate or monthly payment, but you’ll still have to pay off your debts in the long run.

Negotiate for a debt settlement

Sullivan said no creditor wants to be the one left holding the bag while others collect. It’s best to notify all creditors that you cannot and will not be paying off entire debts if you don’t believe you will be able to do so.

From there, you can make an offer to pay about 50% of your balance over three years, or 20% immediately in exchange for a written statement that the amount has been accepted as payment in full for the debt.

That’s just a general suggestion, and this strategy doesn’t always work. But you may want to give it a try if you have credit card debt you truly cannot pay off. Also keep in mind that there are debt settlement companies who can assist you with this process.

Try the debt snowball or debt avalanche

If you have the means to pay off your credit card debt over time, you may make more progress if you’re strategic about it. These two debt repayment strategies may help you stay motivated as you get ahead on your finances.

  • Debt snowball: With this strategy, you’ll make large payments on your smallest balances first. This could help you stay motivated as you pay off debt.
  • Debt avalanche: You’ll pay off high-interest balances first. This could save you money in the long term.

Either method asks you to pay as much as you can toward the prioritized balance until it’s gone while making the minimum payment on the rest of your debt. Use this calculator to find out which method is better suited for you.

Consolidate credit card debt with a personal loan

Personal loans come with fixed interest rates, fixed repayment schedules and fixed monthly payments that can make paying off debt easier to plan. You may also qualify for a much lower interest rate depending on your creditworthiness. Clements said debt consolidation loans are good for people who need a longer timeline to repay their debts and prefer the stability of a fixed-rate, fixed-payment loan. Use our table below to compare multiple options to get the lowest interest rate!

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— Learn more about the best ways to consolidate debt here

How to stay out of credit card debt once you pay it off

No matter what strategy you use to pay off credit card debt, it’s far too easy to fall back into old habits. Here are some strategies that can help you avoid getting into more debt once you’ve paid it off:

  • Stop using credit cards. Liddle said consumers who are prone to credit card debt may want to avoid using credit cards altogether. “It really depends on the person, but you need to be honest with yourself if you’re someone who can’t seem to use credit responsibly.”
  • Only use credit for emergencies. You can keep a credit card for emergencies, but refrain from using it for everyday purchases. Put your credit cards in your sock drawer or a safe so you’re not tempted to use them.
  • Set your credit card bill to be paid automatically. If you want to use credit cards for the perks or rewards once you’re out of debt, it would help to set up your bill on autopay so that it’s paid off each month no matter what.

Paying off your auto loan

A car loan can be a valuable tool if you need a vehicle to get to work and can’t afford to pay in cash. But not enough people realize just how harmful huge car payments can be, and far too many tend to buy more car than they can truly afford. Very often, those who take out car loans with bad credit have it the worst since they tend to pay higher interest rates.

Roork said that, most of the time, it boils down to self-image. Consumers want to look like they have money, so they take out car loans for tens of thousands of dollars and pledge to pay them off for up to 84 months. But those $500-plus payments can make it difficult to save money and keep up with other bills. And since automobiles are notorious for depreciating at a rapid pace, huge car loans are akin to setting money on fire.

If you haven’t borrowed money for a car yet and don’t want to make a life-altering car loan mistake, Liddle said it’s wise to limit your loan to just three years. That way, your larger monthly payments have a better chance of keeping up with depreciation as your car loses value. Plus, you’re not making such a lengthy commitment.

If you have a car loan already and you want to pay it off, consider these strategies.

Refinance your car loan

If your car loan has a high interest rate and you believe you can get a better deal, it may be possible to refinance your auto loan into a new loan with a lower interest rate and better terms. If you do get a lower interest rate, refinancing can help you secure a lower monthly payment or make it easier to pay your loan off faster if you continue paying the same amount you’re paying now.

Pay as much as you can each month

Paying more than the minimum payment on your car loan can help you get out of debt faster. Make sure your loan doesn’t have any prepayment penalties, then pay as much as you can each month, whether that means rounding up your payment to the next hundred dollars or adding whatever you can.

Sell your car and start over

If you owe less than your car is worth, you can also sell your car by owner (or through trade-in at a dealership) and start over with a less expensive car. If you owe more than your car is worth (e.g., you owe $10,000 on a car worth $8,000 according to Kelley Blue Book), you will need to make up the difference when you sell.

Tackling your student loan debt

According to the Bureau of Labor Statistics, Americans with a high school diploma earned an average of $712 a week in 2017, while those with a bachelor’s degree earned $1,173. Workers with a professional degree earned average wages of $1,836 a week last year, while doctoral graduates earned slightly less.

As you can see, student loan debt can be good debt if used wisely. While you are borrowing money to attend college, your loan can pay off in the form of higher earnings for your entire career.

The good news is, federal student loans tend to come with low interest rates and fixed repayment schedules. For that reason, it makes sense to focus on paying off higher-rate and unsecured debts first.

How to lower your student loan payments

But that doesn’t mean your monthly student loans are affordable or easy to handle — even if they’re at a lower interest rate. If you need your student loan payments to be lower, consider these strategies.

Opt for an extended repayment plan that lasts up to 25 years

While the standard repayment plans for federal student loans last 10 years, you can opt for an extended repayment plan that lasts for up to 25 years. You’ll secure a lower monthly payment this way, although you’ll need to pay on your loans for a longer stretch of time.

Check out income-driven repayment plans

Income-driven repayment (IDR) plans let you pay a percentage of your discretionary income for up to 25 years before forgiving your remaining loan balances. Read about the pros and cons of IDR plans before you consider this option.

Find out if you qualify for loan forgiveness

There are myriad student loan forgiveness options, ranging from Public Service Loan Forgiveness (PSLF) to special forgiveness for teachers and members of the military. Read about student loan forgiveness options to see if you qualify.

Refinance your student loans

If you have excellent credit (or a cosigner with excellent credit), you may be able to refinance student loans with a private lender who can offer a lower interest rate. But keep in mind that you give up federal protections such as forbearance and deferment, along with access to IDR plans, if you refinance federal loans with a private lender.

How to pay off your student loans

Let’s say you don’t care to lower your monthly payment but prefer to pay your student loans off as quickly as possible instead. Consider these tips.

Refinance your student loans

If you can refinance your student loans with a private lender and get a lower interest rate, you can pay less in interest each month and pay your loans off faster. As we mentioned already, you will give up federal student loan protections and benefits if you refinance federal loans into private loans.

Make additional payments

Paying as much as you can toward your student loans each month will help you get out of debt faster, particularly if you can make extra payments regularly. Since interest accrues on unsubsidized loans during school, making regular payments on those loans can save you even more.

Make payments as soon as you can

While some student loans don’t require payments until after you graduate or after your grace period is over, you should start making payments while you’re still in school if you can. Doing so will reduce your loan balance and help you get out of debt faster.

Sign up for auto-drafted payments

Some student loan servicers offer a .25% discount if you set up your payments to be done automatically.

Paying off your mortgage

The debate over whether to pay off your mortgage has waged on for years. Some experts suggest that you should take as long as possible to pay off your mortgage since you likely have a low interest rate and may be able to write off mortgage interest on your taxes. Others who are averse to debt would rather you pay off your mortgage loan early.

There is no right or wrong answer here, but you may want to focus on paying off your mortgage once your other debt is gone. If you have an adjustable-rate mortgage (ARM) and you worry interest rates may rise, for example, focusing on mortgage debt could be a smart move. Perhaps you are less than five years from retirement and want to make sure you have all debt paid off before you settle into a new life with a fixed income.

Maybe you just dislike debt and no longer want to owe anything to anyone. Provided other more important debts are paid off, this is OK as well.

But Liddle notes that you could be better off investing your money instead of prepaying your mortgage. If you have a fixed-rate mortgage loan at 4% APR but you could earn 8% in the stock market, then paying off your mortgage may not be a great deal over the long haul. But again, the right answer for you depends on your attitude toward debt, your appetite for risk and your goals.

If you are seriously considering paying your mortgage off early, here are a few ways to do it.

Review government-backed loan modification and refinance programs

Several government-backed mortgage modification programs exist to help homeowners, including the Home Affordable Refinance Program (HARP), Federal Housing Administration Streamline refinancing and Veterans Affairs Interest Rate Reduction Refinance Loans (IRRRL). These programs can help you qualify for a lower interest rate that can make paying off your mortgage faster a much easier task.

Refinance your mortgage

You can also refinance your mortgage through traditional means, either to reduce your interest rate, your repayment timeline or both. Refinancing a 30-year loan into a fixed-rate 15-year loan may help you secure a lower interest rate and cut years (or a decade or more) off your repayment timeline, for example. But keep in mind that you’ll have to pay closing costs on a new mortgage loan.

Sell your home and start over

You can also consider selling your home and starting over, keeping in mind that the average real estate agent will charge 6% to sell and market your home. If you were able to sell your home and turn a profit after real estate fees and moving expenses were factored in, you could purchase a less expensive home and start the process over.

Make biweekly payments or extra payments

Also keep in mind that you can pay off your mortgage faster by making extra payments or biweekly payments. With extra payments, you can either round up your payment each month to an amount you can afford or strive to make at least one extra mortgage payment each year. You could also opt for biweekly payments that would result in one extra mortgage payment being made every 12 months since you would make 26 half-payments instead of 12 full mortgage payments.

Dealing with debt sent to collections

No matter how hard you try to stay on top of your debts, there are times when it’s easier just to let things go. Unfortunately, late payments can hurt your credit score and result in late fees and fines that make catching up that much harder.

While creditors may try to collect on a late debt themselves for up to 180 days, your debts in default will eventually be sent to collections. “At that time, the company’s bottom line takes a hit for the amount owed,” Sullivan said.

Some creditors have in-house collections professionals, while others hire outside firms to contact consumers to see if they can get them to pay. Sullivan said, sometimes, creditors will just sell off their outstanding debts to collections companies. Either way, someone is eventually going to contact you about the amounts you owe.

What to expect with debt in collections

Debt collectors tend to get a bad reputation since they are known for hounding debtors at home and at their jobs. Sullivan even said many debt collectors will intentionally try to make the experience uncomfortable so you’ll just pay what you owe to get the calls to stop.

Fortunately, the Fair Debt Collection Practices Act (FDCPA) spells out limits for debt collectors, as well as penalties for those who threaten, call too late at night or contact employers and family members.

According to Sullivan, the FDCPA permits consumers to notify collectors in writing that they must stop all communication with that consumer, but many do not know this or fail to take advantage of it. Make sure to read up on the FDCPA at our parent company, LendingTree, and know your rights if you feel you are being unfairly targeted or the victim of abusive practices.

How to handle debt in collections

The best way to deal with debt in collections is to deal with debt collectors directly and honestly, Sullivan said. If you decide not to repay your debts and send a letter to ask debt collectors to cease communication per FDCPA rules, debt collections calls should theoretically come to an abrupt halt. If the calls do not end, keep careful records of all contact. “A consumer can take a collector to small claims court for violations of the law and cash awards can be substantial,” Sullivan said.

If you do want to pay off your debt and strike a deal, Sullivan said to put your negotiation cap on. Often, debt collection companies pay only a fraction of the price of your debt to take it over. With that in mind, you could offer a fraction of what you owe and still help them turn a profit. Imagine you owed $10,000 in credit card debt and it got sent to a collections agency that paid only $2,000 to acquire that debt, for example. Even if you offered $3,000 (30%) of the amounts you owed, the collections agency may be inclined to accept it.

The key is to agree on an amount that ends all collection efforts while helping the collection agency get its investment back.

While it may be tempting to ignore debt collectors altogether, this strategy can backfire. Keep in mind that debt collectors can take steps to have your future wages garnished until the debt is repaid, provided the statute of limitations for the debt isn’t up (varies by state), so you can’t just wish it away. Consumers also need to understand that if wage garnishment is successful, their total debt owed can balloon because of late fees, legal fees and interest, Sullivan said.

Bankruptcy: When and where to file

If you’re at the point in your journey where you know you need legal help to get out of debt, it might be time to explore bankruptcy. There are two main types of bankruptcy to consider:

  • Chapter 7 bankruptcy makes it possible to discharge your debts completely, although there are exceptions, such as student loans, child support and some tax obligations.
  • Chapter 13 reorganizes your debts instead of discharging them. This type of bankruptcy allows you to create a payment plan that will repay all or some of your debts over three to five years.

While both types of bankruptcy could be beneficial depending on your situation, it’s likely that you’ll only qualify for one or the other.

Chapter 7 bankruptcy has a “means test” that limits the amount of income you can have and still qualify, for example. You can only file for Chapter 7 bankruptcy if your income is lower than the median income in your state for your family size. This type of bankruptcy may require you to sell your assets, but your house and cars are protected up to certain amounts that vary by state. Retirement accounts, including 401(k), 403(b)s and IRAs, are also protected fully or up to certain limits.

With Chapter 13 bankruptcy, you need to be able to prove you can afford a repayment plan. You also must have filed both state and federal taxes in the last four years, and have total secured debts below $1,149,525 and total unsecured debts below $383,175. But you do not have to sell any property to make up for shortfalls when you file for Chapter 13 bankruptcy.

Filing for Chapter 7 or Chapter 13 bankruptcy requires an in-depth knowledge of the law and your finances. Further, the U.S. government said mistakes and misunderstandings in your case have the potential to threaten your rights. For that reason, it is strongly recommended that you hire a qualified attorney to help with your bankruptcy case.

Regardless, you can file for bankruptcy on your own and without an attorney’s help. Bankruptcy forms are also available for free online. Bankruptcy is best used as a last resort. Debt consolidation is an option that should be considered before filing bankruptcy. You can compare the two options here.

Setting yourself up for financial success

If you’re someone who is determined to pay off debt that you owe, it’s important to approach your goals with the right frame of mind. Clements said that without the right mindset, no debt-payoff strategy can help you. This is especially true if you’re thinking about refinancing your debt or reorganizing it with another loan.

“Before you think about any product that can reduce an interest rate or shorten a repayment term, you need to make sure you solve the budgeting problem first,” Clements said. “Far too many people think that a balance transfer or debt consolidation will solve their problem, but it won’t” — at least, not until the underlying spending problem is addressed.

If you use a balance transfer card to secure 0% interest and pay down debt but continue using credit cards for purchases you can’t afford, you’re not going to end up any better off once your card’s introductory offer is over, he said.

Here are some of the steps you can take to set yourself up for success:

A monthly budget can help you manage your income and your expenses while also keeping you accountable for each dollar you spend. While there are plenty of budgeting apps out there, you can also budget using a pen and paper. Write out all your bills and all your monthly expenses so you can keep track of where your money goes each month, and you’ll be much better off.

Also take the time to track your spending from the last few months. Break out your bank statements and credit card bills, then tally up how much you spent each month in fluctuating categories such as food and dining out, entertainment, transportation, cable television/internet, clothing, etc. You may be surprised at how much you’re spending in certain categories. If you find areas you can cut in your budget, you can reallocate those extra funds toward your debts.

Both Liddle and Roork suggested a similar approach to emergency funds. Build a $1,000 to $2,000 temporary emergency fund as you pay down debt by saving what you can each month, even if it’s just $50 or $100. Once you’re free from consumer debt, try to save up 3 to 6 months’ worth of expenses to cover emergency medical bills, surprise car repairs, job loss and other surprises life might throw your way.

Automating some of your important bills can also help you stay on track with your spending and goals, particularly if you’re using a budget each month. Automate recurring payments and keep track of them in your monthly budget so you never forget when they’re due and always have money set aside for them. And remember, you can automate payments toward recurring bills and your debts.

Life after debt

Life without debt can be a reality, but it takes a lot of work to get there. Not only do you have to focus on paying off the debts you’ve amassed, but you also need to learn how to avoid debt in the future.

Roork said the key to living debt-free is making sure your lifestyle aligns with your wages — not your wants. If you’re debt-free and budgeting each month, it should become very apparent how much you can afford for housing, food and fun, while also reaching your financial goals. And there’s nothing wrong with occasionally splurging, provided your bills are paid and your needs are met.

It’s all about balance.

“Balance today’s lifestyle with the life you want in the future,” Roork said.

Investing for retirement

To that end, both Liddle and Roork suggest getting on track with your retirement goals once you’re debt-free — or even while you’re paying off debt. If your employer offers a 401(k) or similar plan and you haven’t opened an account yet, doing so should be your first step.

Contribute at least enough to get an employer match if your employer offers one. But both advisers said to aim to save 15% or more, including your employer match, if you want to build up a nest egg you can retire on. Of course, it never hurts to save a lot more than that if you can afford it.

If you’re self-employed, you can open your own retirement account. Consider a SEP IRA, Solo 401(k) or similar retirement account to start saving on your own.

Also remember that anyone can open and contribute to a traditional IRA and may be able to deduct their contributions on their taxes depending on their income. You can also open a Roth IRA, provided you meet income requirements. Keep in mind, however, that you can only invest up to $5,500 a year across both a traditional and Roth IRA ($6,500 if you’re 50 and older).

Saving for other financial goals

Besides investing for retirement, you’ll also want to make sure you’re saving money for other goals you might have. After all, you will likely want to enjoy the spoils of your debt-free lifestyle to a certain extent. Perhaps you want to take a vacation, remodel your kitchen or upgrade to a nicer home. Once you are debt-free, all those goals become easier to accomplish provided you make savings a priority.

We already mentioned how you should strive to save three to six months of expenses for emergencies, but you can also set up savings accounts for other goals, such as for your child’s college education or travel. You may strive to put away at least 10% of your income in cash (outside your retirement accounts) for these goals.

Open a high-interest savings account (or several) and set up automatic deposits in amounts you can afford, whether that’s $100 a week or $100 a month. The key to building up savings is making sure your contributions are consistent and keeping your accounts out of sight so you aren’t tempted to spend money you’ve saved.

Final thoughts

A life without debt is entirely possible, and there are myriad benefits to enjoy on the other side. With enough time and hard work, you can build a life that requires few bills or financial stress. You can start saving and investing for a future you can be excited about, and you can break the paycheck-to-paycheck cycle that has plagued you so far.

But like anything else, this process won’t start on its own. Debt freedom won’t magically appear one day, just like money won’t fall out of the sky.

Believe in yourself and focus on the life you want, and you can get out of debt with enough time. Digging your way out of debt won’t be easy, but it will be worth it.

Disclaimer: MagnifyMoney and Student Loan Hero are LendingTree-owned companies. This article contains links from Student Loan Hero and LendingTree.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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Updated – January 10, 2019

Digging out of credit card debt can feel frustrating, intimidating and ultimately impossible. Fortunately, it doesn’t have to be any of those things if you learn how to take control.

Paying down debt is not only about finding the right financial tools, but also the right psychological ones. You need to understand why you racked up credit card debt in the first place. Perhaps it was a medical emergency or a home repair that needed to be taken care of immediately. Maybe you’d already drained your emergency fund on one piece of bad luck when misfortune struck again. Or maybe you’re struggling with a compulsive shopping problem, so paying down debt will likely result in you accumulating more until the addiction is addressed.

You also need to understand what motivates you to succeed. Do you want to pay down your credit card debt in the absolute fastest amount of time possible that will save more money or do you want to take some little wins along the way to keep yourself motivated?

Here’s a couple strategies consider as you learn the best way to handle credit card debt — and pay it off quickly.

2 common credit card debt repayment strategies

These repayment strategies can help you pay off credit card debt quickly. Keep in mind, you can use these strategies even for non-credit-card debt:

  • Debt avalanche: Focus on paying off the credit card with the highest interest rate first. Then, work your way down. This strategy can save you money on interest and get you out of debt sooner.
  • Debt snowball: Pay off your smallest debts first. Doing so can motivate you to continue making payments as you climb out of debt.

You don’t necessarily need to pick the repayment strategy that gets you out of debt the fastest. After all, if your repayment strategy doesn’t keep you motivated, you may not stick to it.

Using a personal loan or balance transfer credit card

As you seek to repay your debt, you could consider a personal loan or balance transfer credit card with a lower interest rate than on your existing debt. Transferring your debt to one of these financial products could help you reduce long-term interest costs.

But you’ll first need to learn whether or not you’re eligible. Your credit score will play a big role in determining your eligibility for a personal loan or balance transfer card. Use our widget below to figure out if a personal loan or a balance transfer is the best option for you!

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If you have a credit score above 640, you have a good chance of qualifying for a personal loan at a much lower interest rate than your credit card debt. With new internet-only personal loan companies, you can shop for loans without hurting your score. In just a few minutes, with a simple online form, you can get matched with multiple lenders. People with excellent credit can see APRs below 10%. But even if your credit isn’t perfect, you might be able to find a good loan to fit your needs.

Not sure what your credit score is? Click here to learn how and where to find out. If you know your credit score needs some work but not sure of what can be done, click here.

If you have a score above 700, you could also qualify for 0% balance transfer offers. We will talk more about balance transfers below but this option is the best way to pay off credit card debt if you’re able to qualify for a 0% APR balance transfer credit card.

A credit score of less than 600 will make it difficult for you to qualify for either option. If you have a credit score less than 640, struggling to make monthly debt payments and would like to explore your options to reduce your debt by up to 50%, then please click our option below to customize a personal debt relief plan.

Custom Debt Relief Plan

Now let’s talk about the financial tools to add to your debt repayment strategy in order to dig out of the hole.

Let’s say you have $10,000 in credit card debt, and are stuck paying 18% interest on it.

You already know that putting as much spare cash as you can toward paying down your debt is the most important thing to do. But once you’ve done that, so what’s next?

Use your good credit to make banks compete and cut your rates

You could save $1,800 a year in interest and lower your monthly payments based on several of the rates available today. That means you could pay it off almost 20% faster.

Here’s how it works.

Option One: Use a Balance Transfer (or Multiple Balance Transfers)


If you trust yourself to open a new credit card but not spend on it, consider a balance transfer. You may be able to cut your rate with a long 0% intro APR. You need to have a good credit score, and you might not get approved for the full amount that you want to transfer.

Your own bank might not give you a lower rate (or only drop it by a few percent), but there are lots of competing banks that may want to steal the business and give you a better rate.

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MagnifyMoney regularly surveys the market to find the best balance transfer credit cards. If you would like to see what other options exist, beyond Chase and Discover, you can start there.

promo-balancetransfer-halfIt also has tips to make sure you do a balance transfer safely. If you follow them you’ll save thousands on your debt by remaining disciplined.

You might be scared of a balance transfer, but there is no faster way to cut your interest payments than taking advantage of the best 0% or low interest deals banks are offering.

Thanks to recent laws, balance transfers aren’t as sneaky as they used to be, and friendlier for helping you cut your debt.

Sometimes the first bank you deal with won’t give you a big enough credit line to handle all your credit card debt. Maybe you’ll get a $5,000 credit line for a 0% deal, but have $10,000 in debt. That’s okay. In that case, apply for the next best balance transfer deal you see. MagnifyMoney’s list of deals makes it easy to sort them.

Banks are okay with you shopping around for more than one deal.

Option Two: Personal Loan

If you never want to see another credit card again, you should consider a personal loan. You can get prequalified at multiple lenders without hurting your credit score, and find the best deal to pay off your debt faster.

Personal loan interest rates are often about 10-20%, but can sometimes be as low as 5-6% if you have very good credit.

Moving from 18% interest on a credit card to 10% on a personal loan is a good deal for you. You’ll also get one set monthly payment, and pay off the whole thing in 3 to 5 years.

Sometimes this may mean a higher monthly payment than you’re used to, but you’re better off putting your cash toward a higher payment with a lower rate.

And you’ll get out of debt months or years faster by leaving more money to pay down the debt itself. If you want to shop for a personal loan, we recommend starting at LendingTree. With a single online form, dozens of lenders will compete for your business. Only a soft credit pull is completed, so your credit score will not be harmed. People with excellent scores can see low APRs (sometimes below 6%). And people with less than perfect scores still have a good chance of finding a lender to approve them.

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If you don’t want to shop at LendingTree, you can see our list of the best personal loans here.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brian Karimzad
Brian Karimzad |

Brian Karimzad is a writer at MagnifyMoney. You can email Brian at brian@magnifymoney.com

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Pay Down My Debt

How to Manage Debt as a Single Parent in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When student loan deferment ended for Samantha Gregory, a single mom and founder of site Rich Single Momma, she had one reaction to her payments: sticker shock. “The amount they were asking for was so astronomical, it was bananas,” she said.

As a single mom in debt, these high payments were added to the already steep financial demands of covering household expenses and supporting her children, including one with special needs — all on one income.

Adding debt to the significant challenges of single parenting “puts a strain on not just your finances, but your emotions, your mental health,” she said. “It’s like, ‘I have this burden over my head so how am I going to take care of it and take care of my family?’”

It’s a question any single parent in debt may find themselves asking. There’s no one right answer, but the good news is that there are smart steps a single mom or dad can use to tackle debt. Here are some tested and certified strategies for how to manage debt as a single parent.

8 strategies for a single parent in debt

1. Keep debt on your radar

A key to managing money as a single parent in debt is to keep an eye on what you owe. Gregory warned against letting debt slip in your money management juggling act. “I know for me in the past, I’ve tried to ignore it and hope it would go away,” she said. “But it doesn’t go away. It’s still there, lingering.”

Keep your debts on your radar, so you’re not losing track of them, falling behind on payments or damaging your credit. If you don’t know what you owe, pull your free credit report and look up each outstanding debt you have and record the balance, interest rate, monthly payment and due date. Start a habit of reviewing these accounts regularly.

2. Work with your lender

Once you know what you owe, see if your lender offers any help or accommodations that can make this debt easier to manage.

You’ll have the most options for dealing with federal student loans, as servicers must provide you with options to forbear or defer payments, or switch to a different repayment plan.

Even for other types of debt, it can’t hurt to ask your lender if they’re willing to work with you. They might be open to giving you an extension on your payment, and some lenders will let you skip a payment now and tack it onto the end of your repayment period instead.

3. Claim benefits and support

Help isn’t always easy to come by as a single parent, so make sure you’re claiming the benefits and child support to which you’re entitled.

Federal assistance programs such as Women, Infants and Children (WIC), Supplemental Nutrition Assistance Program (SNAP) and school lunch programs can ease pressure on your budget while keeping everyone fed, for example. Other programs can assist with fixed monthly costs such as housing, child care or health insurance. Many state and local programs can offer additional help.

Single parents should also consider filing for child support. If you’re already entitled to such payments but the other parent isn’t paying, or you feel it’s not enough, consider pursuing legal steps to get adequate support for your family.

4. Revisit your budget

As a single parent with debt, living within your means is the foundation of your financial security. Review your budget to see if there are areas you’re wasting money on things you don’t need or use, whether it’s a neglected gym membership or a house you’re realizing is roomier than necessary. Consider lifestyle changes and sacrifices — big or small — that you could make to lower your monthly costs.

Look for ways to free up some of the mental space you’re using for your money, too, Gregory suggested. She likes to automate payments, for example, to ensure they’re going out on time with less effort on her part.

5. Sell your extra time and stuff

To the single mom in debt, Gregory suggested looking for ways to generate some extra cash. “I’m a firm believer in side hustles,” she said. “There are so many options out there available to create a side hustle, start a business or just get another part-time job or work-from-home job.”

Then, “look around your house and if you have something valuable you can sell, sell it,” she said. Doing so can bring a fast cash infusion that can help you stay current on debt payments, or even make an extra payment.

It can be a tough and even emotional to sell some belongings, Gregory acknowledged. But, “It’s just things and they’re replaceable, whereas your peace of mind, your family and kids, and your health are not replaceable,” she said.

6. Make extra debt payments

If you can carve out extra savings, that’s money you can use to pay off your debts faster. One method to do so is the debt snowball:

  • Figure out how much more of your monthly income you can afford to devote to making extra debt payments. Include this as a line item in your budget.
  • Put that extra cash toward your debt with the lowest balance, and make the minimum payment on all of your other debts.
  • Watch the balance on your high-priority debt decrease faster.
  • Once your first debt is gone, “roll over” the funds budgeted for your monthly payment and the extra payment and apply them to the next low-balance debt.

Making extra debt payments will lower your principal faster which will, in turn, lower your interest costs. As a result, this strategy could avoid hundreds of dollars in interest and shave months or even years off your debt repayment.

7. Consider debt consolidation

For a single parent, debt consolidation can be another way to get ahead. Consolidating debt makes the most sense when doing so will lower the interest rates you’re paying.

A credit card balance transfer is one way to accomplish this. You can open a credit card with a 0% introductory rate. Then, transfer existing balances to this new credit card (note that this will often incur a balance transfer fee) and you can repay this debt interest-free.

If you have higher debt balances or prefer a fixed repayment plan, a personal loan could be the way to consolidate debt. To do so, you can take out a new personal loan with the rates, term or payments you would prefer and use the loan funds to pay off and replace existing debts. You can compare various lenders with our debt consolidation comparison page to get an idea of the terms and rates for which you could qualify.

8. Tap your community for support

Managing debt as a single parent can be hard on you because, at the end of the day, paying them comes down to you alone. “In the back of your mind, you’re thinking ‘There’s no one who can help me with this,’” Gregory said.

However, you don’t have to go it alone — there are often people who are ready and willing to help as close as your own backyard. So let them! Family and friends can help you out in a variety of ways, from spotting you cash in a tight month to helping with child care. You can also get assistance from your church, community and local nonprofits or programs.

Even if you don’t always find the help you need right away, asking around can start you on the track to getting the recommendation or referral that leads you there. Gregory also suggested online communities, such as local or single-parent Facebook groups, as a way to crowdsource solutions and get connected with helpful resources.

Pass your debt and money lessons on to your kids

Debt can be a big regret for many single parents. “If I had more information when I was going to college, I wouldn’t have taken out so many loans,” Gregory said.

But these ideas for how to manage debt as a single parent can help you push past regret into action. In doing so, you’ll be creating the financial security that your kids need, all while modeling what good money and debt management look like in action.

Gregory, for example, used her experience with student debt to warn her daughter away from borrowing to pay for college. As a result, “She’s really blessed that she doesn’t have to take out student loans, so she won’t be saddled with that big debt when she graduates from college,” she said.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Elyssa Kirkham
Elyssa Kirkham |

Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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