Finances. The thing everyone has but no one enjoys talking about. For the majority of my life, I have personally ignored a lot of my finances up until I went to University. I knew the basics but never had to deal with true financial responsibilities. Then life happened. I bought a car at 18 years old, and I graduated University at 20. Welcome to the world of debt! (and I’m not talking about a credit card).

If you ever want to make plans to buy a home, or start a family, you’ll want to learn a thing or two about managing debt and actually paying it off. Whether you are in $5k, $50K or even $100K+ of debt, you can still pay it off. Today we’re discussing how to actually pay down your debt!

To be clear, you don’t want to put your entire life on hold to pay down you debt. You have to live! But you want to make smart choices with your money. The first thing is putting together a budget that suits your income and basic necessities. Next, add a percentage to save for emergencies. 

See 11 Financial Milestones To Achieve In Your 20s

Lets Begin!

Before anything, start off by paying the minimum on all of your loans. You are trying to get your finances on track, the last thing you want to do is fall behind and create even more problems for yourself. A good place to start is with any existing credit card debt.

There are a few ways to go about it but here is the most popular.

Method 1: Snowball Method.

Look all all your credit cards and figure out which one has the smallest interest rate regardless of their balance.

• Card A: $3,000 balance, 6% interest rate

• Card B: $8,000 balance, 8% interest

• Card C: $12,000 balance, 19% interest rate

The Snowball Method tells you to pay CARD A, CARD B, and then CARD C. Paying off the lowest balance first (regardless of interest rate) as quickly as possible. 

Most people feel a sense of accomplishment once they’ve paid off one card and you should, it’s a hard thing to do and you accomplished it. Most people fall into the feel-good high of accomplishment then go reward themselves by racking up more credit card debt on a fancy splurge. Instead, use the money you have been contributing to your finished CARD A to help you pay off CARD B… Continue as such until all your credit cards are paid off.

This method is very effective, and easy to follow. It’s a great choice for a lot of situations. However, depending on the amount of debt you have, waiting to pay off the loan with the highest interest may cost you a lot of money down the road. I made a modification that I think provides more benefits and kicks your debt repayment into overdrive.

Method 2: Interest Focused Method

Not really a clever title, but hear me out. The second method involves paying off the highest credit card interest first regardless of the balance. Think about it, over a long period of time, you’ll end up paying more in fees and interest on a credit card with a higher interest rate, even if it has a lower balance.

• Card A: $3,000 balance, 6% interest rate

• Card B: $8,000 balance, 8% interest

• Card C: $12,000 balance, 19% interest rate

By this method you’d pay off CARD C, then CARD B, and finally CARD A.

Try implementing these steps and watch your debt go down. It will take some getting used to, but the journey will be worth it in the end!