Man and woman make an online purchase" width="" />We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Man and woman make an online purchase" width="" />
Written by
Amy Sorter
Amy Sorter is an award-winning business, finance, and real estate journalist, and reputable copywriter. She is the principal of The Word Sorters, a content marketing and management company. Amy’s byline has appeared in local, regional, national, and international publications, covering business, real estate, and other topics. She ghostwrites business, finance, and real estate articles for Forbes Magazine, France Media, Institutional Real Estate, and other publications. Amy is known for creating engaging blogs, website copy, white papers and other client content. Her client list includes wealth-management businesses, debt and equity firms, residential real estate agents/developers and commercial real estate companies.
Edited by
Aylea Wilkins
Aylea Wilkins has been at Bankrate since 2019, editing content in student, personal and home equity loans and auto, home and life insurance before taking on editing content in a variety of other categories. She has nearly a decade of editorial experience with a primary focus on helping people confidently make financial and purchasing decisions by providing clear and unbiased information.
Bankrate logoAt Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money .
Bankrate logoFounded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.
Bankrate logoBankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.
Bankrate logoYou have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
Not all debts are bad ones. But bad debts can hang heavy around your neck and create long-term financial strain.
Here’s the good news about bad debt: You can reduce it.
When you have a clear view of your outstanding accounts and amounts, you can use the following tips to get out of debt.
Your spending is divided between “need to have” and “nice to have.” “Need to have” means food, shelter, utilities, transportation and clothing. “Nice to have” is everything else.
While whittling down your debt, you can’t slack off on your “need-to-have” expenditures. But you can decrease your “nice-to-have” spending and use that extra toward a credit card or loan balance.
Cancel that gym membership you don’t use. Cut back on meals out or the daily coffee. Get rid of that streaming subscription you don’t use. Eliminating a $15-per-month streaming subscription gives you an extra $180 a year, which you can dedicate to debt.
The common approaches to paying down debt are snowball and avalanche.
Through the debt snowball strategy, you make minimum payments on all credit accounts and loans — except for the account with the smallest balance, where you put all extra dollars. Once you’ve paid that balance, turn to the account with the next-smallest balance and work on that. Continue this approach until your debt is gone.
As you pay off balances, the amount available “snowballs” into a larger sum, allowing you to pay accounts down more quickly.
The snowball strategy’s main benefit is the quick wins. Seeing a credit card balance at zero within a few months can motivate you to continue. But while you’re paying off smaller amounts, your higher-interest-rate account balances continue to grow, making this method potentially costlier.
With the debt avalanche strategy, you make minimum payments to all accounts. Your primary focus and dollars go to the highest interest-rate balance. Once the balance reaches zero, concentrate on the card or loan with the next-highest interest rate and whittle that down.
The debt avalanche approach eliminates the most expensive debts first, which helps you save on interest payments. However, this strategy requires motivation and perseverance. Your higher-interest-rate accounts could also be the largest balance accounts, which could take longer to pay off.
Paying more than the minimum on a credit card or loan means the account hits a zero balance faster, — and you save on the extra generated by interest rates.
Let’s say your credit card has a 20 percent interest rate and a $5,000 balance. If you make a monthly payment of $100 on that balance, it will take more than nine years (109 months) to pay it off. However, increasing that payment to $200 reduces the payoff time to just two and three-quarters years (33 months).
Paying more than the minimum can also lower your credit utilization ratio. This percentage represents how much credit you use relative to how much you have. A lower utilization ratio improves your credit score.
Bankrate’s credit card payoff calculator can help you determine minimum payment amounts, interest accrual and how long it takes to pay off a balance.
Reducing spending is one way to generate extra cash. You can also use unexpected amounts, large and small, to reduce those debt balances.
If you’ve received a windfall like a large cash infusion from a tax return, work bonus or money from a generous relative, put some of it toward the debt you owe and keep a little to treat yourself to a night out or other fun activity. Every little bit helps when working toward your debt-payoff goals.
You can also make a dent in debt with the debt snowflake strategy. This method requires you to find small savings and direct those little extras toward debt. There are plenty of ways to do this, like:
No, a few dollars a week won’t clear your debt overnight. But think about how many snowflakes can create large snow drifts. In the same way, small savings can help reduce what you owe.
Using a debt consolidation loan or transferring what you owe to a 0 percent APR credit card is one way to handle your debt. Both of these methods let you pay off multiple creditors and lenders, leaving you with a single monthly fee that goes toward the balance of the loan or card.
This approach can make budgeting easier (you’re eliminating multiple payments for one). You could also find yourself with more funds to make that payment, as you’ve eliminated multiple credit card and lender interest rates.
However, pay attention to information like interest rates and loan terms (i.e., the time you have to pay) before signing on the dotted line.
A debt management plan (DMP) can help you in the following ways:
There are a couple of caveats here. First, reputable DMP agencies are nonprofit, but you’ll likely pay a fee attached to your monthly payments.
Second, it’s not a good idea to open new lines of credit or take out loans while on the plan. You’re using the DMP to pay off debt, not accrue more. Also, if you recently entered a DMP (which might be reflected on your credit report), lenders and creditors might be reluctant to give you a loan or credit card. Those that do might only offer rates for bad credit, which means a higher annual percentage rate (APR) or fee.
A debt settlement program means that you reach out to creditors to settle for less than what you owe.
You can either do the job yourself or go through a third-party debt-settlement company that negotiates with creditors on your behalf. Depending on the terms of the agreement, you could end up paying less than what you owe (through a lump sum) or see interest rates and fees reduced or waived.
Jennings commented that debt settlement can be an option for those unable to meet payment obligations. However, “it may significantly impact credit scores and could have tax implications on the forgiven debt,” he said.
Bad debt isn’t desirable. But it’s possible to get rid of it. Following the above strategies can help you reduce your debt while improving your financial health. While you’re paying down debt, examine and modify behaviors that got you there in the first place to prevent going down the same road when your balances are paid in full.
Too much debt is a concern if you rely on credit cards for everyday purchases or use them to pay off other debts. It’s also troublesome if you can only make minimum payments on those cards.
According to Qualified Financial Advisor (QFA) and CFA Charterholder Ian Jennings, debt can also have an emotional impact. “Financial strain can lead to strained relationships, reduced quality of life and limited financial freedom,” Jennings said. “Managing and reducing debt is vital for overall well-being and achieving financial security.”
Not necessarily, but don’t let that stop you from taking steps to lower your debt.
When determining credit health, the Fair Isaac Corporation (FICO) emphasizes your payment history, which represents 35% of an entire credit score. Meanwhile, 30% of that score is your credit utilization, or what you owe vs. how much credit you have.
Even if you pay everything on time, your credit score could suffer if you’ve maxed out your credit cards (which could be the case with a lot of debt). Use no more than 30% of all credit to build your credit score. For example, if your total credit is $5,000, keep your debt below $1,500.
One effective budget for paying off debt is the 50/30/20 method. With this approach, 50% of your net income goes for your “need-to-have” expenses, with 30% going toward discretionary spending (non-essential expenses). The remaining 20% is used to build savings and reduce debt.
If you want to pay off debt more quickly, consider taking part of that 30% and putting it toward your credit card balances.
