Behind the Vault

Getting out of debt can be a daunting task. Every month you’re reminded of how far you have to go as the statements stack up on the kitchen table. What if there was a way to get out of debt without having to pick up a side hustle or make more money? It’s true, and while it takes work and determination, it is possible.

Paying just the minimum balance can keep you in debt longer.

When you carry a balance on your credit cards, compound interest is calculated daily, which means your balance is increasing every day. Creditors are only required to make you pay 3% of your total balance per month, which keeps you in debt. As your total balance goes down, so does your minimum payment, and unless you pay a fixed amount per month, it could take you 20-25 years to pay off your credit cards.

Here's a simple breakdown. Paying just the minimum balance (or the smallest amount due) can make it difficult to pay off debt quicker. Paying the right fixed amount (still within your budget) can help you pay off more debt in less time.

These steps can help you pay off debt quicker.

How great would it feel to finally have the weight of debt off your shoulders and be able to go on a luxurious vacation or send your kids to college debt-free? I’m going to outline some steps to help you get there.

1. List your debts.

First, make a list of every debt you have, while this can be time-consuming, it’s necessary to have a full picture of what you need to pay off. Here’s a spreadsheet to help you get started. List the name of the company you owe, how much the total debt is, what your minimum payment is, and what the interest rate is. Do this for every debt you have. Now, total up the amount you’re paying each month in minimum payments, this is important. In order to gain the most traction, you should keep paying the same amount every month, regardless of your new minimum balance from the credit card company.

For example, you have a $3,000 credit card bill, and your minimum payment is $90. Next month, your credit card bill will be $2,950 and your minimum payment will be $88.50, but you'll keep paying $90. Once that credit card is paid off you will take that $90 and combine it with the payment you’ve been paying on your second debt to pay it down even faster. This helps create compounding momentum to combat the compounding interest.

2. Choose a method to pay down debts

After you’ve outlined your debts, determine how you will tackle them.

Snowball Method

If you’re looking for quick wins, start with the debt that is the smallest and use the fixed payment system to pay it off, then roll that amount into the next debt once it’s paid off. This is more commonly known as the snowball method.

The Avalanche Method

Another method you could use is the “avalanche method” which is paying off your highest interest rate debt first. The process may not produce quick wins, but it does save the most money overall since you are eliminating the debts that are making the most money from you.

3.       Reduce Spending

For this plan to work, you have to commit to limit spending on your credit cards and not spend more than what you make. You can trim your budget in a number of different ways by eating out less, paying yourself first, and reducing your monthly subscriptions. We also have financial counseling services available for free to members and would love to help you get on a path to a healthier and happier financial future.

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