If you’re struggling with paying off $25,000 in debt — or perhaps an amount that is less or more, but you still want it out of your life — you should know you’re not alone in this. The squeeze we are all feeling due to inflation and rising housing costs has forced many of us to rely on
credit cards and loans more than ever before, not to mention the student loans and other debts we may have incurred.
Despite the challenging economic times, you may be feeling the urgency to unload your debt burden. Becoming debt free now versus later is a smart personal finance strategy because borrowing costs continue to increase. Paying off $25,000 in debt may not happen overnight, but with the right focus, you can make it happen.
How to pay off $25,000 in debt
Here are the top strategies to get your payoff plan in motion.
1. Understand what you owe
We all know sometimes it’s hard to face reality. We would rather focus on what could be versus what’s really going on. While optimism is great, it may be holding you back from focusing on a complete debt payoff. Before you can say goodbye to your debt, you must be honest with your finances. This means writing down every amount you owe, how much interest you have to pay, and the repayment terms.
This step has to be taken to solidify a payoff plan. Use this information not to punish yourself or cause even more anxiety but to know exactly what you owe to put the right plans in place.
2. Consider the debt snowball method
You’ll find there’s more than one way to pay off debt, but the
debt snowball method is one of the most popular methods used by thousands of people. This method is favored by numerous personal finance experts, such as Dave Ramsey, and it gives you the momentum you need to tackle debt immediately.
No matter what type of debt you owe, including credit card debt, personal loans, or student loans, you can plow through it with the snowball method. The concept instructs you to pay off your smallest debt first, up to the largest one last, no matter if it has a lower interest or higher interest rate. Your first goal is to pay off the smallest balance with any additional money you earn. Meanwhile, you only pay the minimum payment on your other balances.
Once the smallest debt is paid, you roll the money you were paying towards it each month, plus the minimum payment of your second balance, into the second one. This remains an attractive payoff method because you’re motivated by quick wins.
3. Try the debt avalanche method
The debt snowball method may not sound appealing to you because of your financial situation. As mentioned, there’s more than one way to pay off debt, and the
debt avalanche is another worth considering. With this plan, you list your debts in order of highest interest rate first to lowest (which you should have ready to go since you’ve already completed step 1).
Once listed, you put all money towards paying off your highest-interest debt first while paying the minimum monthly payment on the others. When you’ve completed paying off the first balance, you roll the amount of what you were paying plus the minimum amount and start on the second one.
Some find this debt repayment method challenging because it could take months — or longer— before you see a payoff. However, if you crunch the numbers using a debt payoff calculator, you may find the avalanche method saves you the most in credit card interest or other interest payments.
Debt Consolidation Calculator
4. Review your balance transfer credit card options
Using a balance transfer option with a credit card could be another strategy if you have multiple credit card debt payments. Even with the higher interest rates we see with credit cards, credit card companies are still offering competitive
balance transfer APR offers for 9, 15, or even 21 months. This could represent significant savings in interest payments if used wisely.
Although this is a simple concept, you could get into trouble quickly if you’re not careful. For starters, be sure to review the balance transfer fee. A credit card company typically charges anywhere from 3% to 5% per balance transfer, which can be a substantial amount. It will be important for you to calculate the balance transfer fees and compare it to how much you save in interest with the 0% offer.
For this strategy to work, you need to make more than the minimum payment each month too. Use an aggressive repayment plan to get the debt down to zero by the time the promotional period is over. Otherwise, if you have a remaining balance, you could be charged the entire amount of interest for the time period.
5. Proceed with caution with debt consolidation loans
A
debt consolidation loan may seem the obvious answer, especially if you want to consolidate several types of debt, including credit card payments, personal loans, and medical bills. The concept of this is to combine as many debt payments as possible into one singular monthly payment. You’ll be charged one interest rate and will pay a fixed monthly amount.
The simplicity of the repayment may be attractive, but you should also consider the fees associated with this type of loan. For starters, if your credit score is lower, you will qualify for a higher interest rate, which means the loan is more expensive. Plus, there are lender fees for taking on these loans, such as origination fees, monthly charges, and/or closing costs.
6. Look for opportunities to add income and cut spending
If you want to slay your debt as soon as possible, increased income and decreased spending are two critical ways to make a dent.
Increased income
Extra income comes in numerous forms. For example, you could:
Ask for a raise at your current job to get paid what you’re worth.
Take on a temporary side hustle, such as housesitting, pet sitting, freelancing, or whatever fits your personality and skill set.
Sell your unused items and use the money towards debt.
The key to increased income is to do something you enjoy and something you see results from quickly; otherwise, it becomes a drain on both your energy and time. Any “extra” income you make should be applied to debt payoff to help you save money on interest payments and pay down debt quicker. Or, use it to build up your emergency fund so you no longer depend on your credit cards when your finances are strained.
Decreased spending
The other reality is you may be overspending, and you have the money you’re already bringing in that could also go toward debt. One of the most effective methods for discovering your spending habits is to adopt a budgeting method that works for you. Tell your money where to go and create an impactful spending plan by using one of the following budgeting methods:
Cutting wasteful spending and allocating your money doesn’t have to be a traumatic process. The key is to find a budgeting solution that works for you and you’re comfortable.
7. Determine if additional help is needed
A credit counseling service may be an option if you need help solidifying a debt management plan. Credit counseling services are typically run through non-profit organizations and use a credit counselor to work with consumers and their money management.
A credit counselor may help negotiate your bills and work with your creditors for lower interest rates. Typically, you combine all your debts and make a monthly payment to the credit counselor, who distributes your money to your creditors.
However, monthly fees are involved, which is why it’s often the last resort. Your credit score can take a hit, too, because your credit utilization percentage will increase. Keep in mind you can’t include student loans, auto loans, or mortgages in credit counseling services either. Like a debt consolidation loan or any other tactic, you should weigh all your options before proceeding.
The bottom line
Some days, $25,000 in debt may seem like an uphill battle, but it will be worth the effort when you’re debt-free. The good news is with a realistic strategy, you will pay it off. And if one month you fall short of your repayment goal, you get to start over again the next month. You’ve made huge progress by simply reading this far and realizing you need to make major changes to your finances. Now it’s time to put your plan into action!
