If you have credit card debt and student loan debt, you're not alone. Here are *** few tips from the pros on how to manage these debts without getting overwhelmed. Nerdwallet suggests you start by revamping your budget, prioritize essentials like rent, utilities and transportation and cut back on the rest. The site also suggests you lower credit card interest rates and look for possible balance transfer options. Bank of America suggests you target one debt at *** time but don't forget to pay the minimum balance on each debt. The Consumer Financial Protection Bureau notes that you may be able to claim your student loan interest on your tax return depending on your income and tax filing status. You can claim up to $2500 of the student loan interest you paid in any given year. The agency also knows that if you work for *** government or nonprofit employer, your student loans may be eligible for public service loan forgiveness.
Paying off credit card debt is worth more than money in the bank right now
Credit card interest rates are rising, so it makes sense to pay down your balance.
Updated: 4:37 PM CDT Oct 10, 2023
PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz1odHRwczovL3N0YXRpYy5teWZpbmFuY2UuY29tL3dpZGdldC9teUZpbmFuY2Vfdmlld3BvcnRfZGV0ZWN0aW9uLmpzPjwvc2NyaXB0PjxzY3JpcHQgYXN5bmMgdHlwZT0idGV4dC9qYXZhc2NyaXB0Ij5teWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMjUnKTtteWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMjYnKTtteWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMjUuMScpOzwvc2NyaXB0Pg==Ann C. Logue is fascinated by the intersections of money, culture, and everyday life. She has written about finance at every level, from how to save money at the grocery store to complicated hedge fund strategies. She is the author of five books, Options Trading (Alpha 2016; 2e Penguin 2023), Emerging Markets for Dummies (Wiley 2010), Socially Responsible Investing for Dummies (Wiley 2009), Day Trading for Dummies (Wiley 2007; 4e 2018), and Hedge Funds for Dummies (Wiley 2006; 2e 2023). She has also provided ghostwriting and technical editing services for books published by Bloomberg Press, ClydeBank Media, the International Monetary Fund, and Pearson Educational Services. In addition to her books, Logue has written about industries, executives, and current events for a wide range of consumer and trade publications, including the New York Times, Barron's, Newsweek, Motley Fool, and Entrepreneur. She has also taught finance at the University of Illinois at Chicago, Southwest Jiaotong University in Chengdu, Sichuan, China, and as the Fulbright-Garcia Robles US Studies Chair at the Universidad de Guadalajara, Jalisco, Mexico. Her current career follows 12 years of experience in the financial markets as an analyst with Volpe Brown Whelan & Co., The Chicago Corporation, and Kemper Mutual Funds. She is a CFA charterholder. She holds a bachelor's degree in economics from Northwestern University and an MBA from the University of Chicago.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.The market rate of interest is going up. CreditCards.com, which tracks interest rates, reports that average APRs are hitting all-time highs. Many credit card companies are changing terms, so the rate you were paying last year may no longer be in effect. While savings accounts are also generating high rates of returns, most people are better off using extra savings to pay down debt.Rising interest rates create a great opportunity to evaluate your debt and maybe save some money. If you have a balance on credit cards that are carrying a higher interest rate than you can earn in a savings account, you can get a higher tax-free return by paying off your debt. Even a small reduction in your balance can reap big rewards. There are several methods you can use to reduce your debts and save big money in the process.Why paying off debt mattersMost people find that debt is a normal part of life. Getting an education, buying a car, or finding housing usually involves borrowing some money. The cost of that debt can vary a lot, as can your ability to pay it off. With rising interest rates, carrying floating-rate debt becomes especially costly. While you may have a mortgage locked in at the very low rates available a few years ago, your credit card interest rate is probably going way up. Paying it off will save you money right away.Letâs say you have an extra $1,000. If you put it into a savings account earning 3.5% APY, you will generate $35 in interest at the end of the year. If you instead put that $1,000 toward a balance with a credit card APR of 20.77%, youâll save $207.70 in interest over the year. Keep in mind that you will have to pay taxes on the $35 in interest earned, but you wonât pay taxes on the $207.70 in interest saved. Pay off credit card debt: Three strategies to tryThe higher your credit card interest rate, the more important it is to pay off credit card debt. Depending on your financial situation, you can start with any one of these methods:Consider a 0% APR credit card balance transfer offer: Many credit cards offer 0% APR promotional rates to new customers who transfer their balances for the first few months. (The best balance transfer cards offer 0% APR for at least 12 months.) Look into moving the balance on a high-interest rate card to one with no interest, then work on paying off the balance before the rate increases. Think about saving or investing less: Paying down debt saves you money. Consider putting your extra cash into paying down high-interest debt before adding it to savings. Once your debt is paid off, you can put that money into savings or investment accounts.Look into debt consolidation loans: You may want to consolidate all of your debts into one loan with a lower average APR than youâre paying now. This will allow your monthly payments to make more of a dent in your balance. A debt relief service can help you consolidate. You can also use the calculator below to see how debt consolidation could benefit you.Avalanche, or snowball?So youâve decided to pay off your debt once and for all. Now you need to figure out how to do it. Two popular ways to pay off your credit card balance are the avalanche and the snowball methods. Hereâs how they work:Avalanche: To pay off credit card debt in an avalanche, sort your credit card balances from highest to lowest APR. Pay the minimum on each card, and put any extra money toward the highest APR card. When that card is paid off, apply its minimum to the card with the next highest APR. Keep it up until they are all paid off. This method saves you the most on interest expenses.Snowball: For the snowball, sort your credit card balances from smallest to largest. Pay the minimum on each card, putting any extra funds toward the card with the smallest balance. When that card is paid off, apply its minimum payment amount to the card with the next smallest balance. This method lets you see results faster. Neither method is better. Choose the one that helps you feel like youâre making progress. You could also mix-and-match, starting with the card with the lowest balance, then moving to the card with the highest rate. We wonât tell!The bottom lineFor a few years there, debt was cheap. Now it isnât. The current rising interest rates may be hurting you, so take a look at the rates youâre paying and use that information to improve your financial standing. Thanks to the power of compound interest, even small reductions in your debtâor the rate you pay on itâcan yield big savings on your bottom line.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lenderâs website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
Ann C. Logue is fascinated by the intersections of money, culture, and everyday life. She has written about finance at every level, from how to save money at the grocery store to complicated hedge fund strategies. She is the author of five books, Options Trading (Alpha 2016; 2e Penguin 2023), Emerging Markets for Dummies (Wiley 2010), Socially Responsible Investing for Dummies (Wiley 2009), Day Trading for Dummies (Wiley 2007; 4e 2018), and Hedge Funds for Dummies (Wiley 2006; 2e 2023). She has also provided ghostwriting and technical editing services for books published by Bloomberg Press, ClydeBank Media, the International Monetary Fund, and Pearson Educational Services. In addition to her books, Logue has written about industries, executives, and current events for a wide range of consumer and trade publications, including the New York Times, Barron's, Newsweek, Motley Fool, and Entrepreneur. She has also taught finance at the University of Illinois at Chicago, Southwest Jiaotong University in Chengdu, Sichuan, China, and as the Fulbright-Garcia Robles US Studies Chair at the Universidad de Guadalajara, Jalisco, Mexico. Her current career follows 12 years of experience in the financial markets as an analyst with Volpe Brown Whelan & Co., The Chicago Corporation, and Kemper Mutual Funds. She is a CFA charterholder. She holds a bachelor's degree in economics from Northwestern University and an MBA from the University of Chicago.
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.
The market rate of interest is going up. , which tracks interest rates, reports that average APRs are hitting all-time highs. Many , so the rate you were paying last year may no longer be in effect. While are also generating high rates of returns, most people are better off using extra savings to pay down debt.
Rising interest rates create a great opportunity to evaluate your debt and maybe save some money. If you have a balance on credit cards that are than you can earn in a savings account, you can get a higher tax-free return by paying off your debt. Even a small reduction in your balance can reap big rewards. There are several methods you can use to reduce your debts and save big money in the process.
Why paying off debt matters
Most people find that debt is a normal part of life. Getting an education, buying a car, or finding housing usually The cost of that debt can vary a lot, as can your ability to pay it off. With rising interest rates, carrying floating-rate debt becomes especially costly. While you may have a in at the very low rates available a few years ago, your credit card interest rate is probably going way up. Paying it off will save you money right away.
Letâs say you have an extra $1,000. If you put it into a savings , you will generate $35 in interest at the end of the year. If you instead put that $1,000 toward a balance with a credit card APR of 20.77%, youâll save $207.70 in interest over the year. Keep in mind that you will have to pay taxes on the $35 in interest earned, but you wonât pay taxes on the $207.70 in interest saved.
Pay off credit card debt: Three strategies to try
The higher your credit card interest rate, the more important it is to pay off credit card debt. Depending on your financial situation, you can start with any one of these methods:
- Consider a 0% APR credit card balance transfer offer: Many credit cards offer 0% APR promotional rates to new customers who transfer their balances for the first few months. (The offer 0% APR for at least 12 months.) Look into moving the balance on a high-interest rate card to one with no interest, then work on paying off the balance before the rate increases.
- Think about saving or investing less: Paying down debt saves you money. Consider putting your extra cash into paying down high-interest debt before adding it to savings. Once your debt is paid off, you can or investment accounts.
- Look into debt consolidation loans: You may want to into one loan with a lower average APR than youâre paying now. This will allow your monthly payments to make more of a dent in your balance. A can help you consolidate. You can also use the calculator below to see how debt consolidation could benefit you.
Avalanche, or snowball?
So youâve decided to pay off your debt once and for all. Now you need to figure out how to do it. Two popular ways to pay off your credit card balance are methods. Hereâs how they work:
- Avalanche: To pay off credit card debt in an avalanche, sort your credit card balances from highest to lowest APR. Pay the minimum on each card, and put any extra money toward the highest APR card. When that card is paid off, apply its minimum to the card with the next highest APR. Keep it up until they are all paid off. This method saves you the most on interest expenses.
- Snowball: For the snowball, sort your credit card balances from smallest to largest. Pay the minimum on each card, putting any extra funds toward the card with the smallest balance. When that card is paid off, apply its minimum payment amount to the card with the next smallest balance. This method lets you see results faster.
Neither method is better. Choose the one that helps you feel like youâre making progress. You could also mix-and-match, starting with the card with the lowest balance, then moving to the card with the highest rate. We wonât tell!
The bottom line
For a few years there, debt was cheap. Now it isnât. The current rising interest rates may be hurting you, so take a look at the rates youâre paying and use that information to . Thanks to the power of compound interest, even small reductions in your debtâor the rate you pay on itâcan yield big savings on your bottom line.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lenderâs website for the most current information.
This article was originally published on and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
