Some people increase all their minimum payments by just a little bit, but that way your payments only drop by a small amount each month. You can make more noticeable progress by making a big payment to just one of your accounts each month until that debt is completely repaid. In the meantime, make the minimum on all your other accounts. Then do the same for another debt, and then another, until they’re all paid off.
An emergency fund may sound counterintuitive if you’re trying to get out of debt—you could be using that money to pay off your debt instead of sticking it in a savings account—but an emergency fund can actually keep you from creating more debt. These savings provide you with a safety net you can use when an emergency expense arises, which saves you from reaching for your credit card. The ideal emergency fund is six to 12 months’ worth of living expenses, but you can start by building up at least $1,000, or whatever you can manage to put into a savings account.
The less you pay toward your debt balances every month, the longer it’ll take to pay off your debts. Interest can exponentially expand the timeline for your debt repayment. Any remaining debt balance racks up interest charges every month.
Take credit card debt, for example. In February 2020, the average credit card interest rate was roughly 15%.2 That means that any credit card debt you have gets 15% worse every month. By increasing your monthly payments, you reduce the balance that’s subject to that 15% interest.
It’s only ok to pay the minimum on some of your credit cards when you have a debt-repayment strategy that requires you to make a big payment on one of your credit cards. The key is to be making significant dents in at least one of your outstanding balances every month.
This alone won’t get you out of debt, but at least your debt won’t get worse. If you continue adding debt, it will be much more difficult to make progress on reducing your debt, if you make any progress at all. Reduce your temptation to create more debt by cutting up your credit cards or even freezing your credit.