New year, new financial you - Part 2: pay down debt

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In the previous article, we shared that Americans’ top financial resolutions in 2023 were to save money and pay down debt. We shared some smart ways to save money and kick the year off right.

In this article, we share some of the best ways to pay down debt:

• Create a budget to get a picture of your current financial situation
• Prioritize which debts to pay off first 
• Consider a debt consolidation loan or 0% APR balance transfer
• Seek professional help

Paying down debt can be a daunting task, but it is an important step towards financial stability and security. Let’s get started!

Create a budget to get a picture your current financial situation

‍Before you can start paying off your debt, it’s important to understand where your money is going. This means creating a budget that outlines your income and expenses, and tracking your spending to ensure that you are allocating enough money each month towards paying off your debts.

There are several free budgeting tools and apps available that can help you create a budget, such as Mint and You Need a Budget. You can also use a spreadsheet to track your expenses manually.

Prioritize which debts to pay off first

‍Not all debts are created equal. Some types of debt, such as high-interest credit card debt, can be more costly in the long run. It may be helpful to focus on paying off these debts first, while still making the minimum payments on your other debts. You can also prioritize your debts based on the amount owed, or by considering which debts are causing the most stress or causing the most damage to your credit score.

Many people choose to pay off their debts in one of two ways:

The Debt Snowball Method:
This method involves focusing on paying off your smallest debts first, and then moving on to your larger debts. This can be a helpful approach because it allows you to see progress and can help keep you motivated. You can use a spreadsheet or an online tool like a Debt Snowball Calculator to help you track your progress and see how quickly you can pay down your debts.

The Debt Avalanche Method:
This method involves focusing on paying off your debts with the highest interest rates first. This approach can potentially save you more money in the long run because you will be paying less in interest charges. You can use a spreadsheet or online tool like a Debt Avalanche Calculator to help you determine the best order in which to pay off your debts.

The best plan is the plan that works for you and motivates you to stick with it. Here are some things to consider:

• If you prefer to see results quickly: The debt snowball method will allow you to see your progress more quickly by paying off your smaller debts first. The downside is that you may pay more interest over the long run.
• You can easily stick to a long-term project: If you can stay motivated and pay off your larger debts first, the debt avalanche method allows you to pay off your debts faster, thus incurring less interest charges in fees.

Consider a debt consolidation loan

‍If you have multiple debts with high interest rates, consider consolidating them into a single loan. This can potentially help you secure a lower interest rate, and make it easier to manage your payments.

There are several options for consolidating debts, including balance transfer credit cards, personal loans, and home equity loans. It is important to carefully consider the terms and fees of any debt consolidation option, and to make sure it is the right fit for your financial situation.

It can be overwhelming to decide which consolidation loan to choose. If this is the case, you can use an app like Tally to get a clear picture of your outstanding debt, and apply for a low-interest line of credit. Tally offers basic budgeting tools and a basic line of credit free of charge. With Tally+, you can discount credits applied to your Tally principal balance each month, effectively lowering your annual interest. Tally+ is currently $25 per month or $300 per year, so you’ll need to make sure the overall benefits outweigh the costs.

Other debt consolidation provider alternatives to consider are Light Stream, Discover Loans and Upgrade.‍

Consider a 0% APR balance transfer credit card

‍A 0% APR balance transfer credit card can be a useful tool for paying off high-interest credit card debt. Before looking into this option, you should be confident that you can pay off most of the debt before the introductory period ends, and that you can avoid adding any new debt to the card.

If you don't pay off the balance by the end of the intro period, you will have to pay interest on the remaining balance. Also, consider whether the balance transfer fee, usually 3-5% of the balance transfer amount, is worth it compared to the savings you get from the 0% interest.

We’ve done some of the heavy lifting and recommend a few of our favorites below (accurate as of 1/12/23, but subject to change):

If you have excellent/good credit (~690 FICO score or higher):

1. Wells Fargo Reflect® Credit Card

• 0% APR on purchases and qualifying balance transfers for up to 21 months (17.24% to 29.24% variable APR thereafter)
• Balance transfer fee: 3% of transfer amount for transfers made within first 120 days; 5% thereafter ($5 minimum)
• No annual fee

2. BankAmericard® Credit Card

• 0% APR on purchases for 21 months on purchases, and on qualifying balance transfers for 60 days (16.24% to 26.24% variable APR thereafter)
• Balance transfer fee: 3% of transfer amount ($10 minimum)
• No annual fee

3. Chase Slate Edge(SM) Credit Card

• 0% APR for 18 months on purchases and qualifying balance transfers (19.24% to 27.99% variable APR thereafter)
• You will automatically be considered for an APR reduction by 2% when you pay on time and spend at least $1,000 on your card by your next account anniversary
• Balance transfer fee: 3% of transfer amount ($5 minimum)
• $0 My Chase Plan fees during introductory period
• No annual fee

If you have fair credit (~630 FICO score or higher):

Discover It Balance Transfer Card

• 0% APR for 15 months on purchases and qualifying balance transfers (16.24% to 27.24% variable APR thereafter)
• Balance transfer fee: 3% of transfer amount for each transfer posted to account by 4/10/23; 5% thereafter
• No annual fee
• Plus, earn 5% back on select quarterly categories and 1% back on everything else. Discover will match the cash back rewards you’ve earned on your credit card for the first 12 consecutive billing cycles

Seek professional help

‍If your debt is overwhelming and you’re not sure where to turn, consider seeking help from a financial professional or a credit counseling agency. They can help you create a plan to pay off your debt and get your finances back on track. A debt management plan may be also be a good option. With a debt management plan, you make a single monthly payment to a credit counseling agency, which in turn pays your creditors. This can help you get a lower interest rate on your debts and make it easier to pay them off.Many credit counseling agencies are not-for-profit. The National Foundation for Credit Counseling and Financial Counseling Association of America are both accredited non-profit agencies you may contact to for advice on how to manage your debt. Be sure to have a sense of your credit score and list of debts prior to your consultation.

Remember, it’s important to be proactive when it comes to paying off debt. The longer you carry it, the more it will cost you in the long run. With dedication and a solid plan, you can get your debt under control and take control of your finances. You’ve got this!