Strategies for Paying Off Debt

If you're feeling overwhelmed by debt, a solid strategy can help you regain control. There are several effective methods you can use to pay off what you owe.

Debt Consolidation

This strategy involves combining multiple debts into a single loan. A home equity loan (HEL) is often the best option if you own your home and have equity, as it typically offers a lower interest rate compared to an unsecured loan.

Even if you don't own a home, an unsecured personal loan can still be a good choice. While the interest rate may be higher than an HEL, it's often lower than the high rates on credit cards. The main advantages of debt consolidation are a single, fixed monthly payment and a clear repayment timeline, which makes managing your debt much simpler.

Highest-to-Lowest Interest (Debt Avalanche)

This method, often called the debt avalanche, is the most mathematically efficient way to pay off debt. You start by making the minimum payments on all of your debts. Then, you put any extra money you have toward the debt with the highest interest rate.

Once that debt is paid off, you apply the money you were paying on it to the next debt with the highest interest rate. You continue this process until all your debts are gone. This approach saves you the most money in interest over time.

Lowest-to-Highest Balance (Debt Snowball)

The debt snowball method focuses on building momentum by paying off your smallest debts first. Like the avalanche method, you'll make minimum payments on all your debts. However, you'll put any extra money toward the debt with the lowest balance.

Once the smallest debt is paid off, you "snowball" that payment amount into the next smallest debt. While this method might result in paying more in total interest, it provides a powerful psychological boost. The quick wins of paying off individual debts can motivate you to stick with the plan and keep going.

If you need help with a plan to get out of debt, contact us for your free consultation.

Disclaimer

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors and Synergy Wealth Management are separate entities. 

Neither Stratos nor Synergy Wealth Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation.