The Art of Paying Down Debt

by Jeffery A. Keill, CFP, CIM, FMA, FCSI, Portfolio Manager and Senior Wealth Advisor Keill and Associates- Advisory Team

Walking on the beach and frolicking along the waters edge is one of life’s greatest joys. Drowning in the depths of the endless ocean is not. Amazingly these two locations are often a mere stones throw away from each other. To move on the waters edge is done with freedom and ease. Treading water in unknown depths that are over your head is done with limited mobility and certain risks. Debt is much like this. To much debt and you don’t have the capacity to keep your head above water let alone get back to the safety and freedom that the shore line provides. In this Serious Money publication, we want to talk about how to get back to shore and the art of paying down debt.

The Art of Debt Paydown: Strategies to Take Control of Your Financial Future. Debt- whether from student loans, credit cards, mortgages, or personal loans- can feel like swimming in the ocean with a weight around your neck. It can pull you under the water and leave you gasping for air. If you have had a substantial debt in your life, you will know this feeling. While some amount of debt is often necessary in life to reach your goals, when it spirals out of control, it can impact your mental, emotional, and financial well-being. The good news is that debt paydown is a process you can take charge of with the right strategies and a clear action plan. You need to first understand, agree and prioritize that change is needed. You will notice I did not say, “simply” in that last sentence. The fact is debt happens most often over time and is habitual. There is nothing simple about changing a habit. It requires focus and redirection of thoughts and reactions.

Lets walk through effective debt paydown strategies that can help you regain control of your finances and get you back to shore safely.

The Foundation: Understanding Debt

Before you can effectively tackle your debt, it’s essential to have clear understanding of where you stand. Do not neglect this step .If you desired to lose weight, you would likely want to document your starting weight as a motivator for the weeks and months to come, would you not? Start by creating a detailed list of all your debts, including the balances that are owing, interest rate, and minimum monthly payment for each. This list should also include your due dates to avoid any late payments as these can have nasty repercussions. It is very important to document it. That means write it down!

Our Wealth Advisory Team suggests that you document each debt as follows in a Debt Inventory Checklist

• Creditor Name

• Balanced Owed

• Interest Rate

• Minimum Payment

• Due Date

Once you have your debts summarized, you can move on to choosing the best strategy for paying them down.

Debt Paydown Strategies

There are several well-known approached to paying down debt with cute little names for each of them. Each has its pros and cons, but the key is finding one that motivates you to keep going and that it fits your financial situation. Here are the top three methods we recommend:

The Debt Snowball Method

The debt snow ball method is often used because it affects not only paying down the debt but develops a sense of accomplishment. You want to increase the chance of success of a habit change, ensure there is gratification and reward for an action. With this approach, you pay off your smallest debt first, regardless of the interest rate. Once the smallest debt is paid off, you move to the next smallest, and so on. With each individual debt being eliminated you can see the list of creditors shrinking.

Why it works:

• Momentum: Paying off smaller debts quickly can give you a sense of achievement and boost your motivation.

• Psychological payoff: The feeling of progress is powerful and helps to keep you focused on the long-term goal.

Of course paying down the smallest debt balance using the Snowball Method does not necessarily mean paying down the highest interest rate debt. This is not the most efficient method in terms of interest savings it can be a great way to build positive momentum, especially for those who struggle with motivation. It is better to succeed in the longer term and pay  slightly more interest than to ultimately fail in its completion.

The Debt Avalanche Method

The debt avalanche method is a more financially efficient strategy. With this approach, you prioritize paying off the debt with the highest interest rate first, while continuing to make minimum payments on other debts. Once the high-interest debt is paid off, you move to the next highest interest rate, and so on. It is a very common approach due to its efficiency but does lack the psychological benefits and is a little harder to keep momentum.

Why it works: 

• Interest savings: By focusing on high-interest debts first, you reduce the amount of interest paid over time, allowing you to pay off your debts more quickly.

• faster results: If you can stick with this method, it’s the most financially efficient in terms of reducing the overall amount you owe.

While the debt avalanche method may not offer the same emotional satisfaction as the debt snowball, it’s a powerful way to minimize the amount of interest you’ll pay over time and potentially pay down debt faster in the long run.

Consolidate and Refinance Debt (When Appropriate)

Okay, this is not really a paydown method, but merely a strategy to simplify and potentially reduce the cost of higher debt. If you have multiple high-interest debts, consolidation or refinancing could help you pay them down faster. With consolidation, you roll multiple debts into a single loan, often with a lower interest rate (especially if it is a secured debt), making it easier to manage payments. This is sometimes referred to as restructuring.

Pros:

• Lower interest rate: A consolidated loan might offer a lower rate, which means more of your payments go toward the principal instead of interest.

• simplified payments: With one payment to keep track of, it’s easier to stay on top of due dates and avoid missed payments.

• Potential for lower monthly payments: A longer repayment term might reduce your monthly obligation, though this could lead to paying more interest over time.

However, be cautious with consolidation. If it offers a lower payment but it could extend your loan term, you may end up paying more interest in the long run.

Conclusion:

Paying down debt can feel like your drowning, especially when you’re facing significant balances or high interest rates. But remember, every step you take is progress. Every step brings you closer to shore. Whether you use debt snowball, avalanche, or another strategy, the most important thing is to act. It’s about setting clear goals, staying disciplined, and being patient.

Financial freedom isn’t just about paying off what you owe- it’s about building a future where you control your money, not the other way around. You should be the master of your money and not the other way around. Debt repayment is a marathon, not a sprint. Keep your eyes on the prize and celebrate the little wins along the way.

Contact our Team of Experience Wealth Advisors to learn more about how strategies mentioned here and how you can once again take control of your money .

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last edit Feb 3, 2025