Dear SoFi, I’m overwhelmed by debt. Can you help me?

Dear SoFi, I’m overwhelmed by my debt. I don’t know how to get my finances under control. Can you help me?

Personal debt is as American as apple pie at a bake sale.

Midway through 2024, total U.S. household debt reached an all-time high of $17.8 trillion, according to the Federal Reserve Bank of New York. And that enormous sum is spread pretty broadly across the population: Two-thirds of Americans have some personal debt, and the average amount people owe is $22,713,
according to a 2024 Northwestern Mutual study.

Meanwhile, the average American pays $1,225 toward debt each month, which would eat up more than 25%
of the median U.S. monthly income of $4,660. And these are just rough numbers; for many, the financial
pressure is even greater. Is it any wonder that 90% of us are stressed about money, according to research from Thrive Global and Discover?

Facing your debt head-on can be extremely challenging. And yet it’s really the only way to bring about change. Here’s a quick overview of how you might do it.

First, write down what you owe. Sort your debts by interest rate. If you crave the satisfaction of completing a task, you can elect to pay off a smaller debt completely. Or you can tackle the debt with the highest interest rate first, which usually makes the most financial sense.

This is not rocket science. And it’s not easy, either. But setting a goal and then hatching a plan that is integrated into your budget will help you climb out of debt. In fact, taking the first step may provide some real relief, emotional and financial.

Here are some commonly used strategies for paying down debt:

•   Debt snowball: Those who struggle with discipline may be able to build some momentum by paying off their smallest debt first. The satisfaction may help sustain your efforts. (Just remember to continue making the minimum payments on your other debts in the meantime.)

•   Debt avalanche: From a financial perspective, this is the best strategy for most people. It’s simple in concept: Divert as much as you can reasonably manage toward the debt with the highest interest rate. The trick is sticking with it. (Continue making the minimum payments on all your other debts.)

•   Debt fireball: Identify your “good debt” – that is, loans or mortgages you’ve taken out to finance purchases that may appreciate, like a home. Then list out your “bad debts,” which you racked up to pay for items that usually lose value such as clothing, furniture, or vacations. Pay down the bad debt first, then move on to the good debt.

•   Refinance: Interest rates aren’t always set in stone, and there are a number of ways to refinance your debt – using a loan or credit card, for example. If you can get a lower interest rate, it may be a savvy move. There may be drawbacks, however. Some 0% balance transfer cards charge fees, and the interest-free payback period typically lasts three to 18 months. Once it ends, you’ll need to make sure your debt is paid off, or you may be subject to a very high interest rate. So, refinance carefully and in the context of a practical payback plan.

•   Consolidate: Transferring a handful of different debts into one can simplify things considerably. A SoFi personal loan can be used to consolidate debts with no origination fees, no prepayment fees, and no late fees.

Learn more about creating a debt reduction plan.

Digging out of debt isn’t easy. It may require you to adjust your budget until you get back on track. For example, if you follow the 50/30/20 method – where you spend 50% of your income on needs, 30% on wants, and 20% on savings – you could divert that 20% to additional debt payments. And I’d also recommend that you stop using credit cards.

Setting achievable goals will help you stay motivated. Stick with it and celebrate your wins along the way. With some time and discipline, you can be debt-free. (Almost) Easy as pie.

In financial health,
Kendall Meade,
CERTIFIED FINANCIAL PLANNER®

photocredits: iStock/SrdjanPav

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