Life would be so much easier if we had no debt. But for most of us, that’s not reality. We need cars, money to go to school, and funds for our everyday living. We may not make enough money to be able to pay for these in full, so we borrow funds so that we can afford what we need. With high-interest rates, it may seem like you make payments but don’t see a whole lot of progress. Below we discuss some ways to knock down your debt by how you make your payments.

Organize Your Debt

A good rule of thumb to paying down your debt is to know what you owe. Make a list that includes;

• Who you owe money to
• How much you owe
• What rate of interest are you paying?
• What is your monthly payment

By listing out what you owe, you can start to take control over your debt. Don’t be discouraged by what you see – making a list gives you a roadmap to how to best attack your debt.

Pay Small Debt Off

There is a psychological aspect of paying off your debt. When you continue to make your monthly payments but don’t see the balances coming down, it’s frustrating. Make extra payments to clear up your smallest debt first. While it may not save you a huge amount of money in interest, seeing progress in your debt reduction plan can keep you motivated to reach your goal.

Once you’ve paid off your first small debt, consider taking that monthly payment and applying it toward another small debt. By continuing to knock out the smaller amounts that you owe, it reduces the number of payments that you have to make. Plus you continue to see progress in your debt reduction plan. A little sense of accomplishment can go a long way.

What Debt is Next?

So you’ve paid off the little things – what’s next? What you choose next can depend on a few things…

• High-interest rates – If you have a debt with a much larger interest rate than others, consider applying extra payments to get this debt paid down first. If it’s a higher balance, it may take you longer to pay off. But you will end up saving money in interest payments.
• Lower interest rates – Certain debt, such as student loans, have lower interest rates than debt from credit cards or car purchases. Consider paying these down at the end of your debt repayment plan since the interest is costing you less than what you may be paying toward other debt.

Other Ways to Attack Debt

There are other options available to attack the debt that you owe. A few suggestions to help manage and reduce your debt include;

• Refinancing – If your debt carries a high-interest rate, consider if refinancing is an option. You can still plan to make the same monthly payments, but with a lower interest rate – you will pay this off sooner.
• Debt reduction – Debt that is owed toward student loans may be forgiven if you meet certain requirements and qualify for a debt reduction plan. If this is an option for you, consider setting an income-based repayment plan (IBR) up or applying for a federal or state program. If you make your payments on time, you may be able to forgive a portion of the principal balance due. This could save you a considerable amount of money. Debt that can be reduced over time should usually come in last on your debt reduction plan. If you pay this off too quickly, you may not be getting the full benefit of the write-off.
• Tax benefits – If you have loans where interest is tax-deductible, consider paying these off last as well. Student loan debt and mortgage interest, in some cases, are eligible for a deduction on your return. By holding off on paying these until the end, you still receive a benefit. Plus it allows you to focus on paying off debt with higher interest rates.

Taking control of your financial future starts with taking control of your debt. If you owe money on your credit cards, car loans, student loans, or have other financed debt, coming up with a plan to repay this will help you actively reduce what you owe. Strategically paying down your debt will not only help your financial future, but it will also make your monthly payments work more effectively.