How to Pay off Debt

By Barbara O’Neill, Ph.D., CFP®, Financial Resource Management Specialist, Rutgers Cooperative Extension and eXtension Military Families Learning Network (MFLN) Personal Finance Team

Two hallmarks of a financially successful life are little or no debt and a good credit score. Over a third of your credit score is based on debt repayment history and 30% is based on credit utilization ratio (relationship between the amount borrowed and the maximum credit limit). For example, if you have a $10,000 credit limit and a $1,000 balance, the ratio is a 10%. Borrow $9,000, however, and the ratio jumps to 90%. The lower your credit utilization ratio, the better.

Let’s say you have a high debt balance and want to whittle it down as quickly as possible. What to do? 

In summary, if you want to start saving, investing, and/or increasing the amount that you currently set aside, pay off your debt as soon as possible.  There are five smart things that people can do to get out of debt:

1.       Increase income

2.       Decrease expenses

3.       Avoid new debt

4.       Accelerate debt repayment

5.       Reach out for help, if needed.

Don’t ignore a growing debt problem because it will only get worse. Take action to address the situation today.