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Paying Off Debt Without the Stress

Pyramid Payments for Getting Rid of Debt

Paying off debt can be a stressful, daunting task and at times it can feel like an endless burden. However, if you are in debt, you are in the majority of Americans. According to a study by The Pew Charitable Trusts, about 80% of Americans have debt. Of generations X and Y, 86 and 89 percent have debt of some kind, respectively.

According to NerdWallet, credit card, mortgage and student loan debt takes up a sizable portion of many people's debt. Many times, this is accumulated through a positive life choice, such as buying a home or getting an education, according to CNBC. The study found that 68 percent of people felt the loans and credit cards led them to greater opportunities.

"Americans have a love-hate relationship with debt," Diana Elliott, Pew's research manager for financial security and mobility, told CNBC. "They know they need debt, but they don't actually want it."

However, just because the accumulation of the debt leads you to a "more fulfilling life" doesn't mean it's any easier to pay off. There is a simple solution on how to budget yourself for getting out of debt.

Pyramiding Your Payments

Owing money can be stressful and a difficult burden to shake. Lucky for borrowers, there are ways to pay off debt successfully. It will take some strategy and discipline, but being financially liberated can be in your future.

Before creating a strategy, it's important to determine just how much debt you have. The average amount of student loan debt is $31,946. The average amount owed to mortgages is $155,361 and credit card debt totals $16,140 on average. Money Talks News advised people to figure out how much they owe in each category and lay it all out in a spreadsheet or notebook. Once you know how much you owe, you can begin to create a payment plan that fits your needs. You will also need to know the minimum payment you can make on each one.

There are two main ways you can address debt directly. Magnify Money calls these the "debt avalanche" and the "debt snowball." They are both effective ways to pay down debt, but some prefer one over the other, depending on their personality.

According to Time, financial experts typically suggest the debt snowball approach. This strategy begins with the smallest of the debt amounts. Take care of these debts completely before moving onto a bigger ones. People choose this approach because handling a smaller, more manageable debt amount will motivate you to continue with your payment plan. If you begin with a larger amount, you may not feel like you are making progress right away and become easily discouraged.

"Once you know how much you owe, you can begin to create a payment plan that fits your needs."

On the other hand, taking on the debt with the highest interest rate is more fiscally sound. While it is important to keep your motivation up, it is also important to be as frugal as possible. Beginning with the debt with the highest interest rate will save money and time, because there will be fewer months and years for the interest rates to add up.

Regardless of which method you use here are your step by step instructions:

  1. Identify the first balance you will conquer.
  2. For all the other balances, only pay the minimum amount.
  3. Put all extra funds toward your chosen account. Each month, pay as much as you can on this one debt, while keeping the other payments at the smallest possible.

It's as easy as that. After the debt is paid off, take all the money you were putting toward it and focus it on the second one you wish to tackle. If you were paying $400/month on the first debt and your second debt had a minimum payment of $20 a month, you will now be paying $420 a month on this balance. This is called pyramiding, Money Talks News explained. Each time you zero out a balance, you will have more money to put toward the next amount owed.

Another Approach To Clearing Your Debt

Of course, pyramiding isn't the only way to pay off debt. Time explained that transferring some credit card debt to a card with 0% annual percentage rate can help reduce debt quicker, because interest payments won't be piling up while you try to pay it off. Credit.com explained that you will need good credit for this, so it's a good idea to find out what your credit score is. You are entitled to one free credit report a year from either TransUnion, Equifax or Experian. The credit score isn't necessarily included on the report, but for a small fee, you can find out what it is.

Just remember that paying off debt isn't easy. Chances are, you will have to carefully watch your expenses while you are focusing on getting rid of it. However, financial freedom is a goal worth pursuing. By following these strategies, you will be on your way to a life with less stress and more monetary options.

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