How to Pay Less Interest on Your Debt

Paying off debt is hard enough – don’t let interest make it harder.

Whether it’s credit cards, student loans, or a car payment, interest can quietly drain your wallet over time.  The good news? With a few smart strategies, you can cut down on the interest your pay and get out of debt faster. After all, a penny saved is a penny earned.

Here are a few tips to help reduce the interest you pay every month:

• Pay more than the minimum – Even a small extra payment each month reduces your balance faster and lowers the total interest you’ll pay over time.
• Pay sooner or more frequently – If you carry a balance on a credit card, make your payment earlier in the billing cycle to reduce your average daily balance and therefore, the amount of accumulated interest due.
• Ask for a lower rate – If your credit has improved or you’re a long-standing customer, lenders may reduce your rate, if you simply ask!
• Focus on high-interest rate debt first – Use the “avalanche method” and target debt with the highest interest rate first, while making minimum payments on the rest.  This approach saves the most on interest in the long run.
• Transfer your balance – Explore moving higher-interest rate debt to a lower-interest rate account. This is typically done by transferring one credit card balance to another. To help evaluate if this makes sense for you, ask about balance transfer fees, how long the introductory interest rate remains valid, and what the annual percentage rate will be after the introductory period ends. Our balance transfer calculator can help you crunch the numbers.
• Shop for a consolidation loan – These loans can be unsecured, meaning there is no collateral, such as a vehicle or home tied to the debt. Still, they may offer better interest rates than other unsecured debt like credit cards. A few precautions to consider with consolidation loans include:
  • The potential loss of SCRA benefits by consolidating preservice debt into the loan
  • A potentially worse financial situation if the root cause for your debt has not been addressed
  • A possible repossession of a vehicle or foreclosure on your home if you use them as collateral and default on repayment
• Evaluate using home equity – Tapping into the equity in your home, either through a home equity line of credit, home equity loan, or cash-out refinance, can be an excellent way to pay off high interest rate debt. However, the same precautions mentioned for consolidation loans apply here too.
• Consider a retirement plan loan – Take a low-interest loan against your employer-sponsored retirement plan to pay off higher interest rate debt.