Fox Money Blueprint: How to Pay Off High-Interest Debt

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07.15.2024 Written by Fox Communities Credit Union

Throughout the Fox Money Blueprint blog post series, you have been building momentum by setting financial goals, working to increase your savings and emergency fund, establishing a budget and more. With that solid foundation in place, we can begin work on reducing high-interest debt. Once you have an emergency fund in place, it’s a great time to start tackling debt.

How Does the Debt Snowball Method Work?

Now that you have your emergency fund building and are saving for your future, it’s time to pay off high interest rate debt!  Let’s attack those pesky credit cards and personal loans.  We will highlight a few different ways to do this, but we recommend using the Debt Snowball method.  Here is how it works:

  • Start by allocating all your extra funds per month towards the smallest debt.
  • Once this debt is paid off, use those funds to pay off the next smallest debt.
  • Continue to use that “snowball” method until all debts except your mortgage (and maybe your primary auto loan) are paid off.

Here’s how it could look in real life: Let’s say you have a $500 hospital bill that you are paying $50 per month at 9.9% interest. You also have a credit card with a $2500 balance at 21.9% and a personal loan with a $5000 balance at 24.9%. Make sure you have budgeted enough to cover the minimum monthly payments on all debts.

Every month, put all your extra funds towards the hospital bill. Once it is paid, take those funds and start paying off the credit card. Continue this process until your personal loan is paid in full. Even though you are not paying off your highest interest debt first, you are making progress early with the smallest debt and really getting that snowball to roll downhill! Make a plan to celebrate. Track your achievements throughout the journey and take the time to celebrate your wins!

The Debt Avalanche Method

The next strategy is the Debt Avalanche.  In this method, you attack putting all your extra funds towards the debt with the highest interest rate first.  In the previous example, that would be the personal loan.  This will take you longer to get the first debt paid off, so it really takes discipline to make the avalanche method work.

Wouldn’t it feel amazing to be debt free?  Well, you can do it!  Once you achieve the previous steps and have taken care of high-interest date, then you are well on your way to building your nest egg. Now it’s time to pay off your low interest rate debt.  Let’s crush that mortgage loan!

Get Debt Management Help at Fox Communities Credit Union

If your high interest rate debt seems insurmountable, you might want to consider a third option called a Debt Management Plan. This typically requires working with a professional.  We work with a partner by the name of GreenPath, an organization that works with your creditors to get the interest rates reduced on your high interest rate debt (typically credit cards).

The plans are typically set up for three or five years and are set up to pay back all your principal balance in full at a reduced rate. GreenPath can typically lower your monthly payment because of the lower interest rates. They do charge a small monthly fee to administer your plan.  It will vary depending on the number of creditors you have. If you are interested, you can call them toll-free for a free consultation at 877-337-3399. If you are not sure which strategy is right for you, feel free to call our financial wellness team at 920-993-9000. 

Fox Ripple Effect Financial Makeover Challenge

As you learn new skills with the Fox Money Blueprint, you can also follow 3 teams of Fox members and all that they are learning as part of the Fox Ripple Effect Makeover Challenge.

Fox Communities Credit Union launched this new event on April 2 and challenged 3 teams to reduce debut, build savings and improve their credit scores for chances to win cash prizes.

Each team works one-on-one with a Goodwill Financial and Debt Solutions Services personal finance coach to learn new skills and work towards their financial goals in this 6-month challenge. The team with the largest improvement in each of those 3 financial areas will receive up to $5,000, with a $2,500 prize for 2nd, and $1,500 for 3rd place. Catch all the updates from the participants on Fox’s social media channels and blog!