3 Steps to Lower the Cost of Your Debt

Does the thought of dealing with your debt make you want to go back to bed? More than 1 in 5 Americans (22%) are likely to put off creating a debt payoff plan, according to a June 2022 survey from NerdWallet conducted online by The Harris Poll.

That’s a lot of procrastination, and it’s no wonder why. Facing your debt isn’t exactly a fun way to spend an hour. Still, there are actions you can take that will make getting out of debt feel more attainable. And there are ways to lower interest payments, which will save you money as you work toward paying down your balance.

“We see debt as, ‘Oh my god, I screwed up.’ That is baloney in all caps,” says Kate Mielitz, an Olympia, Washington-based accredited financial counselor with a doctorate in personal financial planning. “Americans struggle to pay back debt, struggle to save and struggle to do the things we know are the right thing. We just have to say, ‘OK, that was yesterday. What can I do to take one step today?’”

1. Forgive yourself first, then make a plan

The first and most difficult step is understanding how you got here. When Valerie Rivera, a certified financial planner and founder of FirstGen Wealth in Chicago, works with clients, she helps them go through credit card statements to categorize purchases and look for spending patterns. That makes it easier to create a new spending plan that leaves room for debt repayment.

Here’s why this part is essential: It takes you out of autopilot. You may have been making minimum payments on your debts because that’s what you felt you could handle. And while that approach does allow you to avoid late fees and knocks to your credit scores, it’ll keep you trapped in debt for a much longer time. If you can shift your spending even slightly, you may be able to afford bigger payments.

If you have $10,000 in credit card debt at a 17% interest rate and you pay $150 per month toward your balance, it’ll take 17 years (and cost $20,820 in interest) until you’re debt-free. That’s assuming you don’t add to your debt balance during that time. But if you were able to double your monthly payment to $300, you’d spend $3,629 in interest and get out of debt in about four years.

“If you have debt, you’re normal. It is possible to get out of it and to face it,” Rivera says. “The number-one thing is to face it and give yourself grace in the process.”

2. Make some bigger money moves

Freeing up more money to put toward debt is a start, but you may have to make additional changes to make more of a dent.

Rivera sometimes recommends temporarily limiting contributions to retirement accounts if your credit card interest rate exceeds the return you’d get on investments. She also looks at whether her clients can make more dramatic lifestyle changes, like taking on a side hustle for more income, or getting a roommate to cut down on living expenses.

It can be helpful to work with a financial professional when making big changes. If the cost is a limitation, the Association for Financial Counseling & Planning Education is offering free virtual one-on-one sessions with accredited financial counselors for a limited time.

3. Lower your interest rate

Combine the actions above with lowering your interest rate so you can save even more. Here are some strategies to consider.

• Ask for a lower rate: Call your credit card company and see if you’d be eligible for a lower interest rate. They might say no, but it doesn’t hurt to ask.

• Look into balance transfer credit cards: These offers generally charge a one-time fee and require good credit (FICO scores of at least 690). But they let you move debt onto a card charging 0% interest for up to nearly two years, depending on the card. You’ll save on interest, but don’t let your debt sit there without a plan. Aim to pay off your debt before the interest kicks in again, and use debit cards or cash to make purchases so you don’t add to your debt.

• Explore loan consolidation: A personal loan allows you to consolidate your high-interest debts into one lower-interest monthly payment for a set period of time, if you qualify.

• Tap into home equity: A home equity loan or line of credit can provide lower-interest financing that you can use to pay off your credit card debt. But you risk losing your home if you can’t pay your debt going forward, so be cautious.