Strategies for Paying Off Loans and Improving Financial Health

To achieve financial wellness, one should focus on discipline and planning – for example, establishing an emergency fund, retiring debt, and setting future savings goals.

These strategies can help you get out of high interest rate debt, and help you reach your life goals. Bonus tips: spreadsheets to track spending and ways to tell needs from wants.

High-interest paydown

Among those strategies are paying electronic payments to federal student loan servicers (which will lower interest charges), paying bi-weekly instead of monthly payment, and more. In banking, a debt repayment strategy called the snowball method allows for every extra dime above your minimum payment to go toward your smallest balance first. Once that’s paid off, you put the extra cash toward your next smallest loan. It rolls on from there. This technique will help you build momentum and you’ll have small wins along the way – both of which are critical to keeping on track towards your goal of becoming debt-free. An incremental approach, it tackles high-interest-rate debt first and continues to pay minimums on everything else. While it isn’t as knee-jerk satisfying as the snowball plan, it will probably save you money out of the starting gate, since interest costs will go down right away.

The snowball method

Debt can loom over you as a constant obligation, and it’s important to select a method that works for you and preserves your specific debt-repayment goals. A common version of the debt snowball assets each debt against one another and by the balances and then devotes extra payments to paying down the smallest one first; once it’s paid off, direct those payments to pay off other small debts now gone as overdue bills. In terms of the total interest you’ll pay back over the life of the loan, it would actually be more pragmatic to arrange your debts by interest rates and pay off the highest first (the debt avalanche). Yet the smaller victories you create with the Snowball can provide motivation to help you pay back your accumulated debt more quickly than you would with an avalanche approach.

Debt consolidation

Debt consolidation is the process of lumping together several different debt balances into just one new loan with one single payment. This is popular for credit cards and other nonmortgaged personal loans like personal or student loans – both with often far higher interest rates than a mortgage – where the transaction streamlines management complexity and often saves money as well through the reduction of the interest rate you pay while you try to pay off all of your debt. Balancing your debt load against where you stand today – meaning your current interest rates, terms and loan lengths, and your long-term financial goals – will help determine whether debt consolidation is likely to make financial sense for you. You might want to use a debt consolidation calculator to help you. Often debt consolidation is ‘moving bad money around to make bad money look good’ so either learn to live within your means or burn it and start over. Debt consolidation could include taking out secured home equity loans, tapping retirement savings via 401(k) loans, or opening new accounts for credit consolidation. All are dangerous, generally add to your debt-to-income ratio, and can cause you to lose money through paying high fees, closing costs, and interest charges. If going the consolidation route, turn your focus toward tactics that transfer from higher to lower interest accounts, ultimately decreasing interest costs year over year, and simultaneously increasing liquidity over time.


It might help you to see where all your money is going so you can spend wisely. Even tracking cash flow on a weekly basis can identify spending patterns, such as if certain weeks you get short-changed that some creditors or utility payments may be adjusted to what comes in that week. Muscling up your emergency fund is another great way to juice your balance sheet of financial health and give you the kind of cover you could use if you stumble into an economic emergency – one that avoids adding more debt to your balance sheet, and one that’s guided by a professional who can help you craft a saving plan and goals. Financial wellness, in turn, means that your net worth (number of assets minus what you owe anybody) is positive, that you’re managing new debt carefully, that high-interest payments come before all others, that you’re spending within your budget, and that your buddies realise that you’re not going to save them from bad decisions but that you’re always there if they want your advice.

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