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Education Resources from The Muncy Bank & Trust Company

Click below to read guides, articles and educational resources designed to help you plan for your financial future and understand our banking products & services. Want to learn more? Contact The Muncy Bank & Trust today by calling 570.546.2211 or by visiting one of our locations!

5 Strategies to Pay Down Debt

Posted on 1/29/2021 by Jackie Fedeli in debt loans

Is lowering debt part of your financial plan? This might sound like a difficult task, but here are five strategies, to help you lower or consolidate your debt.

If a recent check of your finances came back in the red, you’re not alone. According to Experian's annual Consumer Debt Study, the 2019 average household debt in America was $90,460. As a country, we have a total household debt of over 14 trillion dollars. While carrying debt has become a cultural standard for Americans, more families are striving to become debt-free. As your community partner, Muncy Bank wants to help you get out from under the weight of your debt. We’ve gathered the best strategies for paying down your debt and avoiding common “quick fix” scams.

According to Experian's annual Consumer Debt Study, the 2019 average household debt in America was $90, 460 - picture of a parents and daughter

Look at your Numbers

Start by identifying your sources of debt and calculating how much money you owe. Debt is considered any money you owe to an outside source, not including monthly variable expenses such as your utility bills or childcare costs. The most common sources of debt are mortgages, car loans, credit card balances, student loans, and medical bills. Dave Ramsey, author of Financial Peace, provides an online tool to calculate your total debt. Make a list of each debt, the amount you owe, and the interest rate you are paying on the balance. Don’t get overwhelmed. With this information in hand you are now prepared to tackle your debt. 

Good Debt and Bad Debt

Before you can start paying down your debt, you’ll need to separate your “good” debt from your “bad” debt. When it comes to creating a healthy financial portfolio, not all debt is considered bad debt. Loans that help you generate income or are an investment in your future fall into the category of good debt. Student loans, your home mortgage, or small business loans may be helping you achieve your goals and create a wealthier future. For now, consider these types of debt acceptable and focus on your bad debt. Bad debt includes high interest credit card balances, personal loans that you’re using to pay for discretionary items, payday loans, and car loans. 

Make a Plan

No matter the size of your debt, the concept is the same -- start putting money towards paying down your debt. The longer you ignore your debt, the more it will cost you. If you’re wondering where you can find the extra money to pay down your debt, take a look at your monthly budget. While it may be painful to trim your restaurant allowance, you’ll feel great paying off your debt and may even decide to cut back further on luxury spending once you start seeing results. Making room in your budget for extra debt payments will save you money in the long-run and lead the way to financial freedom.

Don’t have a monthly budget? Now is a great time to make one. Meet Your Financial Goals by Setting a Budget will help you get started.

There are many ways to approach paying down debt - the best repayment strategy is the one you are willing to stick to - couple looking at a laptop and papers

Attack the Debt

There are many ways to approach paying down debt. The best debt repayment strategy is the one you are willing to stick to. For some people, this means rolling all their debt into one, easy to manage, monthly payment. For others, chipping away at their smallest debt first gives them a sense of accomplishment that keeps them motivated. To help you choose your course of action, we’ve outlined five common strategies for paying off personal debt.

Snowball Method

Start by listing your debts in order from the smallest to largest amounts owed, ignoring the interest rates. Tackle the smallest debt first; let’s say it’s a $4,000 student loan balance. Continue making the minimum payments on all your debts, but put extra money each month towards this student loan. Before long, that debt will be paid in full and you can enjoy the satisfaction of crossing it off your list! Continue moving up the list until each debt is crossed off. You’ll gain momentum with each debt you eliminate.

Avalanche Method

List your debts by interest rate. In this method, the debt with the highest rate goes at the top of your list regardless of the dollar amount. Often the highest interest rate is credit card debt. Paying off your highest rate first will save you money while you work to eliminate other debts. Since you may be attacking large loan amounts first, it will take longer to see progress using this method. Continue making the minimum payments on all your debts while putting extra money towards the debt with the highest interest rate. Eventually, you'll feel the financial relief of crossing it off the list, paid in full.

Debt Consolidation Loan

If you want one monthly payment that will chip away at your debt, a debt consolidation loan may be the right option for you. A debt consolidation loan will roll your debts into one easy payment at a fixed rate. Muncy Bank’s debt consolidation loan calculator will help you determine if a consolidation loan is right for you. 

A home equity loan allows you to take advantage of your home's value in order to pay off your debits - couple sitting on the couch staking hands with a lender

Home Equity Loan 

A home equity loan allows you to take advantage of your home’s value in order to pay off your debts. The difference between what you owe on your mortgage and what your home is currently worth is your home equity. A home equity loan allows you to borrow a portion of that amount as one lump sum. You can use this lump sum to pay off your other loans, especially high-interest rate credit cards. You now have a fixed loan payment that you can focus on paying down as quickly as possible. Read more about how a home equity loan can help. 

Balance Transfer

Having debt doesn’t mean you have bad credit. If your credit utilization ratio is high and you make timely payments, you may have an excellent credit score. Take advantage of a high credit score by applying for a promotional APR credit card. Some credit cards offer a 0% APR introductory period for 12-18 months with no balance transfer fees. This means you can transfer the balance of your high interest rate credit card to this new card and pay no interest during the introductory period. If you can’t find a credit card with zero balance transfer fees, that’s not a deal breaker. The fee is usually fairly small and could be worth the money you’ll save on interest. Once you’ve transferred your balance, work on paying off the debt within the promotional period. You’ll be one step closer to a debt-free life.

There iis no easy way out of debt. It's a slow and steady climb that requires financial discipline.  Refuse the temptation to borrow from your 401k to repay debt. - Image of a woman typing on a laptop surrounded by calculators and charts

No Quick Fix

There is no easy way out of debt. It’s a slow and steady climb that requires financial discipline. Refuse the temptation to borrow from your 401k to repay debt. 401k withdrawals come with taxes, penalties, and fees. Utilize other strategies to pay off your debt without damaging your retirement. 

Another tempting “quick fix” that you should avoid is debt settlement. Debt settlement companies promise to negotiate with your creditors in order to lower your debt into a lump sum payoff. They charge a fee for their services and often provide zero or minimal results. 

Start Today

When you decide to act on your debt, the best time to start is now. Muncy Bank is here with advice on debt repayment strategies and loans that can help. Our online calculators can help you determine how long it will take to pay off your current credit cards and how soon you can eliminate your debts. At Muncy Bank, your financial well-being is a top priority. Stop by one of our convenient Lycoming County locations in Muncy, Hughesville, Clarkstown, Montoursville, Dewart, Avis, Montgomery, and Linden or give us a call today. Our community associates are eager to help you get out of debt.

The Lending Team at Muncy Bank is here with advice on debt repayment strategies and loans that can help you - Image of a lender meeting with a man and woman

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