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Building Debt Awareness: Let's Talk About it

March 18, 2022

Paying off large amounts of debt can be overwhelming. Despite millions of Americans having debt, it's not easy to talk about, and you may not know where to look for help. That’s why in today’s post, we’re covering why you shouldn’t be ashamed of your debt. We’ll also cover some ways that Truebill can help and recommend resources if you’re feeling stuck. 

But first, some stats 📊

If you struggle with debt, rest assured you are not alone in your financial journey. At the end of 2021, Americans had over $15.5 trillion dollars in debt according to the New York Federal Reserve. To put that in perspective, you could spend a million dollars a day, every day, for 42,000 years and still not reach that amount. 🤯

Check out some other stats about debt in America:

  • Over 175 million Americans use credit cards 
  • Average U.S. household debt: $155,622 
  • Total mortgage debt in America: $11.25 million
  • Total student debt in America: $1.58 trillion
  • Average American with student debt: $59,042
  • Average American with revolving credit card debt: $6,006 

With this amount of debt, and credit card interest rates as high as 25.99%, it’s no wonder so many Americans are struggling. With interest rates that high, because of how compound interest works, it can be really difficult to pay down your debt quickly.

What is compound interest? 🤔

Compound interest is when your interest grows based on the amount you originally borrowed, plus any interest incurred. In other words, your interest is generating even more interest.

If you're investing, compound interest is great – it allows you to have faster and faster growth over time. If you’re in debt however, it means the amount you owe will get bigger and bigger unless you bring down the principal balance (the amount owed separate from any interest charges or fees). Unfortunately, in order to touch that principal balance, you have to pay any interest incurred first. This is what makes debt so difficult. It's also why making extra payments on your debt is so helpful, because it brings down that principal, decreasing future interest charges.

Check out this calculator to see how much of an impact an extra payment can have on your debt. Even an extra payment as small as $25 per month can save you hundreds or even thousands of dollars in interest over time.

There are two main strategies to paying down your debt that you should know about: the Avalanche method and the Snowball method. Both involve prioritizing any extra payments according to either the highest interest rate or lowest balance debt.

Avalanche vs. Snowball method 💪

At a high level, the avalanche method and the snowball method are two different ways you can pay down your debt faster and save money in interest by applying any extra payment to either the highest interest rate debt (regardless of the balance on that particular debt), or the lowest balance debt (regardless of the interest rate).

For example, let’s say you have $6,000 of debt across three different credit cards:

Credit card Balance Interest Rate
Visa $3,000 22%
Mastercard $1,000 19%
Target Credit Card $2,000 18%
Total Debt $6,000 N/A

Out of both methods, the avalanche method would save you the most money in interest over time. In this example, you would apply any extra payment – let’s say an extra $25 – to the Visa, regardless of the balance on your debt. Once that’s paid off, you would then apply the money from that payment plus the additional $25 to the next highest interest rate card; your Mastercard in this example. You continue this pattern until all of your debt is paid off.

With either method, you continue to make minimum payments across all of your debt. The strategy is only for any extra payment you can afford.

If using the Snowball method, you’ll pay a bit more over time, but will wipe out one of your debts first. This method is best for those that prefer a quick win! Instead of starting with the Visa, you would start with the Mastercard because it has the lowest balance. Once that's paid off, you would move to the Target card as the next lowest balance debt.

Click here to learn more about the snowball or avalanche method. 

But where are you supposed to find extra money to make that payment? That’s where Truebill can help by tracking your spending to find where you may be able to cut costs, cancelling subscriptions, or negotiating bills to find the extra money to pay down your debt.

How to use Truebill to tackle your debt 💪

Dealing with debt is no easy task, but there are things you can do to try and accelerate the process. Below are a few ways Truebill can help, as well as some options you might consider depending on your situation.

  1. Find out how much debt you have: The first step in paying off your debt is to figure out how much you have. One easy way to do this is to review your free credit report. Checking your credit report will not impact your credit score, but it will show you if you have any past-due payments or delinquencies you’ve forgotten. You can review your free credit report here. You can also find your current credit card balances on the Dashboard tab if you've linked all of your accounts. 
  2. Free up cash to put towards your debt: Truebill can help you accelerate your debt payoff by cancelling subscriptions or negotiating bills for you, to free up extra cash. Not sure what subscriptions you have? Check your recurring expenses here. 
  3. Use a budget to manage your spending: Use Truebill to set up your budget and estimate how much you can put towards your debt. You can also use your budget as a guide to track your spending to identify areas where you might be able to cut back.
  4. Consider debt consolidation: Debt consolidation involves taking out new credit to pay off your existing debts, usually at a lower monthly payment or interest rate. It also simplifies your payments, leaving you with only one monthly payment, though it may require an upfront fee. You can see what rates you qualify for through Truebill’s partner, Happy Money.
  5. Refinance your student loans: Refinancing is the process of using one new loan to pay off another or multiple loans, usually at a lower interest rate or monthly payment, similar to credit card consolidation. Using Truebill's partner, Credible, student loan borrowers may be able to refinance their student loans, saving hundreds or even thousands in interest over time. That said, you'll want to be careful if you have federals student loans, given some of their unique benefits relative to private student loans. You can read more about the pros and cons of student loan refinancing here.

Still feel underwater? Consider free counseling 💙

If you've tried it all and you're still having trouble meeting your monthly payments, then you might consider getting some free help through the National Foundation for Credit Counseling (NFCC). 

The NFCC is a nonprofit organization that helps people having difficulty making their payments through a debt management plan. This is not to be confused with a debt settlement plan, which is often provided by for-profit companies and has a reputation for scams. Instead, a debt management plan is an agreement you enter with a nonprofit agency to assist you in paying off your debt. They’ll help you create a budget and may be able to lower your interest rate or eliminate fees. Entering a debt management plan does not lower your credit score and is usually low-cost or completely free.

To learn more about the steps involved in credit counseling, click here