How to Pay Off $100,000 in Loans

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If you've got $100,000 in outstanding loans, your financial situation might feel overwhelming. With a good plan and some discipline, however, you can attack that debt and start paying it off fast with three easy steps.

Step 1: Write a Budget

Budgeting is the essential first step to paying off $100,000 in loans because you can't make progress getting out of debt without controlling your monthly spending. A good budget should reflect how much money you take in each month and how much you spend. Major items like your rent, car insurance, loan payments and food will account for more of your spending, but you need to record smaller items like your daily coffee fix, too. To capture the full picture of your spending habits, look over your receipts and bank statements.

When you complete your budget, you should have a good estimate of how much money you have available at the end of each month. That's the pool of money you can use to start paying off debt faster. If you don't have a surplus, you'll need to cut monthly spending until you do.

Step 2: Consolidate Debts

If you owe money on a car, your house, two student loans and five different credit cards, for example, it can be challenging to keep track of everything. You can simplify your budget and save money on interest by consolidating all that debt into as few accounts as possible. For example, if you have multiple student loans you can often combine them into a single account, sometimes at a lower interest rate. You can also transfer credit card debts to a single low-interest card. That reduces the number of checks you write each month and may save on your minimum payment.

Step 3: Choose Your Strategy

Once you've consolidated your debts as much as possible, you can start paying them off. There are two good methods for attacking those loans: debt snowballing and debt stacking. Each method works but has particular strengths and weaknesses.

Debt Snowballing

The debt snowballing method involves making the minimum payment each month on all your outstanding loans, but making extra payments on the loan with the smallest balance. Imagine you have four loans:

  • A car loan worth $1,500
  • A student loan worth $7,500
  • A personal loan worth $10,000
  • A mortgage worth $80,000

Under the debt snowballing technique, you'd make the required payment on all four loans, but you'd pay pay as much extra as possible on the car loan every month until the balance is zero. The big advantage of this technique is that you can see your progress every month. It provides an extra psychological push to save money and avoid future debts. The disadvantage is that this technique could cost you some extra money in interest charges compared to debt stacking.

Debt Stacking

The debt stacking technique works like debt snowballing in that you pay the minimum due on each loan every month. The key difference is that you pay extra on the loan with the highest interest rate instead of the loan with the lowest balance. If your student loan had the highest interest rate of the four from the examples above, you'd pour all your extra cash into that one.

The big advantage of debt stacking is that it retires your high-interest debt fastest. In the long run, that saves hundreds or thousands of dollars on interest charges. The downside is that it might not feel like fast progress.

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