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Save by Reducing Debt


Save by Reducing Debt

One of the most significant contributors to financial stress is debt. If you're having a tough time financially, it can feel isolating, but the truth is 80 percent of Americans have consumer debt. The only way to relieve financial stress is to make a plan and work your way through it. But to make that plan, you'll need to understand the type of debt you have, your best-case scenario to pay down your debt, and how to leverage your knowledge so that you can maintain or increase your credit score. When you reduce your debt, you save in the long run — on late fees, interest, and a higher credit score, which will lower interest rates.


You thought we'd say budget first, didn't you? While creating a spending and savings plan (a preferred term over "budget") is essential, clarity is the actual value of having a plan. When you know your exact income and expenses, you can better steward the discretionary income left over after your bills are paid. It will become easier for you to decide how much to spend if you can put more toward debt, what goes into savings, and whether to begin making investments. Your spending and savings plan will also highlight areas that need attention.

For example, is your grocery allocation adequate? Are all of your subscriptions and recurring monthly expenses still necessary, or can any be canceled? Knowing where all of your money is coming from and going to helps you build financial confidence and shows you where you can afford to reduce your debt and begin building wealth.

If you need support with making a spending and savings plan, we've created a straightforward tool that will help!


When you're paying down your debt, one conscious decision to adopt is to stop adding to your debt. This step may seem intuitive, but there are circumstances where the urge to "charge it" may arise.

Many "Buy Now, Pay Later" options are becoming increasingly popular. Though it may feel like it is not, options like Klarna, Afterpay, and Affirm are debt.

As you work to pay off your credit cards, here's a word of advice: do not close your credit cards!

Closing your credit card accounts may reduce your credit score, as the "age" of your credit factors into your FICO score. By keeping your card open with a $0 balance, you'll have a more extended credit history and a more significant amount of available credit. The only time you may want to consider canceling a card is if it has pricey annual fees.


If you can, consider increasing your income temporarily, allowing you to put more money towards your debt. This will enable you to pay down your debt faster! There are many options to get a quick cash injection or additional income in today's economy. Some ideas include selling items around your home you no longer use, purging your closet on sites like thredUp, leveraging a talent or skill you have, like tutoring or singing, to offer as a service, or taking advantage of the booming gig economy.


There are many strategies to use when working toward paying off your debt. The most popular plans include the snowball method or the avalanche method. By deciding which way you want to use beforehand, you will reap the benefits of paying it off faster.

Snowball method 

"Snowballing" your debt is a type of accelerated debt repayment plan. First, list your debts from the smallest balance to the most significant balance. Next, make the minimum payment on all your debt except the smallest one. With your smallest debt, you will put as much money as you can toward the balance. Once the smallest debt is paid, take the amount you were putting towards that debt and apply it to the next smallest. With this method, interest rates are not the focus.

Avalanche method

With the "avalanche" method, you will still make the minimum payments on every source of debt, but you apply the remaining funds toward the debt with the highest interest rate. You reduce the overall interest you pay by paying off the debt with the highest interest rate first. 

Making extra payments allows you to pay off your loan(s) more quickly when paying toward installment loans, like your car payment. Just be sure to specify that any additional funds outside of your monthly payment go toward the principal. Before you begin making extra payments to installment loans, check the terms of your loan to determine whether additional fees or prepayment penalties may apply.

Regardless of how you decide to reduce your debt, let Blue Ridge Bank and America Saves be your savings accountability partner! Take the America Saves Pledge and choose "reduce debt" as your savings goal. They will support you by sending email and text reminders, resources, and tips to keep you on track towards paying down your debt and don't forget about our Personal Finance Manager tool.