3 Questions to Ask When Paying Down Debt

3 Questions to Ask When Paying Down Debt

 Making a plan to pay off debt can come with a lot of questions such as, ‘How long will it take?’ or ‘How should this payment be included in a budget?’  Answering these questions can assist in creating a better plan for the future and keep your budget on track.



There are two major types of debt:  installment and revolving.  Installment debts are fixed payment amounts, such as an auto loan or mortgage.  Revolving debt can be variable payment amounts based on balances, such as lines of credit or credit cards.

 

Here are three questions to ask as you make a plan to pay down debt.

 
number one in blue box  Which debts should be paid off first?

Not all debt is created equal.  While it’s ideal to pay off all debts, sometimes it’s beneficial to pay off certain debts faster than others.  Typically, revolving debts have higher interest rates.  And while paying off debts with the highest interest first will save you more, sometimes paying off a smaller debt first can yield a satisfying feeling that can provide momentum to sticking with your plan.

 
number two in blue box  How long will it take to pay off my debts?

Depending on the amount and types of debts, this time frame can be intimidating to calculate.  Start with your installment loans first, such as an auto loan.  For example, if it’s a four year loan and you’ve paid it for six months, you have 42 months remaining.  Once you’ve itemized your fixed payments, then add variable payments such as credit cards. 

 

 number three in blue box  How do I plan on paying off my debt?

There are many options when making a plan to pay off debt.  Here are a few:

 

  • Consolidate your loans.  Use our consolidation calculator to determine if consolidating certain debts like student or credit card loans, can make your monthly payment more affordable.

 

  • Pay extra each month.    Build your budget with our budget tool to determine how much of your income can go towards eliminating debt.

 

  • Contact your lenders.  Depending on the debt, you can contact your lender to ask for a lower interest rate to speed up the repayment schedule.

 

 

Celebrate each victory.  Debt is a part of life, and paying it off is a milestone that should be celebrated.  Make a calendar dedicated to motivate you to pay on time each month and create a celebration on the day one debt is marked off your list! 

 

Evaluate your progress.  Think about the “snowball effect”.  After one debt is paid off, consider moving that monthly payment and add it into another debt to pay off the next one faster.

 

 

We’re here to help.  Whether you’re starting a new financial journey or tackling existing debt, American Eagle Credit Union is here to help you make those goals a reality.  Visit our resource center for more financial tips or become a member todayQuestions?  Call our Member Contact Center at 1-877-325-2848 or contact us online.


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