Sense & Centsibility Blog

Minimize Your Debt This Year

Get out of debt

With the financial strain of the holidays, many find this time of year to be a stressful time. If credit card debt is haunting you in this new year, we have some advice to help minimize your debt going forward. Learn about balance transfers, debt reduction strategies, and other strategies destroy debt!

What resources or apps are available to those trying to pay down debt?

A Debt Management Plan is a great tool if you want a single, lower monthly payment on credit cards. On a DMP many creditors will offer a lower interest rate, which can really save you money! 

DMPs are offered through Credit Counseling agencies, but make sure to find a reputable non-profit agency to avoid scams. I recommend an agency that is certified by the National Foundation for Credit Counseling.  Go to to find a local NFCC agency.  

A self-payment tool is the “Debt Snowball” or “Power Payment” method where you concentrate on paying on one debt at a time, paying minimum to all others. Once the first debt is paid in full, put all extra funds to the next debt. A good free resource is through Utah State University.

Is a credit card balance transfer worth it? 

It can be worthwhile, but depends on the terms and if you are able to pay off debt in the time frame offered on the low interest. Watch out for balance transfer fees, which can really add up. Also, make sure you are aware of any annual fee. 

Terms for balance transfers vary, usually 12-18 months, then the rate usually skyrockets. If you have a plan to pay in full before the low/0% ends, it can save you a lot of money. Note that opening up a new account and charging to the limit will lower your credit score! As with any contract, read the terms and know what you are signing up for!

What should you do if your balance transfer limit is too low? 

Avoid charging up to the limit, which, as noted above, will decrease your credit score. Consider the terms and determine if the transfer is even worth doing. If you transfer a partial balance, make a plan on the remaining balance as well.

What are some common myths that keep people in debt? 

  • Tracking spending and sticking to a budget is not worth the time or energy spent. At first, it can be time consuming, but is worth the effort. If you are aware of spending you are in control! 
  • I need a house payment so I can write off the interest on my taxes. If you can pay off your house, you can invest the funds elsewhere! 
  • I deserve this (bigger house, newer car, vacation, new phone, etc.) because I work hard or will pay it back or am on vacation, etc. 
  • I have to use credit so I can afford to pay for things for my kids. Kids learn from what they observe in their parent’s, do you want them to be in debt when they grow up? Teach them the importance of budgeting at a young age so they avoid debt!
  • I need a credit card in case of an emergency. Not true! If you set aside savings and plan ahead, you can avoid getting in debt if faced with an unexpected loss of income or expense.  Everyone has car payments, they are part of life. 
  • Debt helps you build credit.  Not true!  You can have credit available to build credit, that doesn’t mean carrying over balances.  If you use credit, pay it in full each month. 
  • I’ll pay off my debt when I get my tax refund.  You may, or you may use it somewhere else!

How does debt affect your credit score? 

Payment history has the biggest impact on your credit score. The next biggest impact is your debt balance as it relates to the available credit limit. 

The higher your debt balance, the more of a risk you become if you appear to be “maxing out” accounts. 

Keep your balances at or below 30% of the credit limit. Or, better yet, pay off all credit cards monthly and avoid carrying over a balance!

At what point should you file for bankruptcy? 

If the stress from debt is overwhelming, causing health issues and relationship problems, and you’ve explored other options, then consulting with an attorney is a good plan. 

Consultation does not meet you file, but allows you to make an informed decision on whether filing is the right option for you or not. Seek advice from an NFCC Certified Credit Counselor, who can review your finances with you and provide your options.

In what order should I pay off my debts? 

You can either pay off the smallest balance or the account with the highest interest rate.  

Either way works. Paying off the smallest balances tends to have a more immediate impact from a motivational standpoint as you can see debt being paid off, which can psychologically push you to keep paying off debt.

Should I prioritize paying off debt or saving for emergencies? 

I always recommend having money in savings as a cushion before extra payments on debts. What is your back up plan if you have no money in savings and face an unexpected expense?

If you have no plan and no savings, it is likely you’ll use credit so is counterproductive to your goal of being debt free. Having $500-$1000 in savings is a good place to start.

What are some best practices for avoiding credit card debt altogether? 

Emergency savings is crucial! Save up for what you want, avoid the immediate gratification and convenience of using credit.

Any final tips on minimizing debt? 

If you have to use credit, make a plan to pay it back as aggressively as possible. Stick to cash!  If you get in trouble, get help!

These questions were answered by Marjorie Klimek, an LSS Financial Counselor. All questions are a part of Experian’s weekly Twitter chat.