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It’s a problem most people face at some point: You’re carrying balances on multiple credit cards, or loans and it’s difficult to keep track of due dates or pay more than the minimum. You’re racking up interest charges and feel like you’ll never pay off those balances. What can you do? Make a plan to manage your debt — and consider consolidation as a tool to help you do it.

Make Your Plan

A basic plan for paying off debt starts with three simple steps:

1. Write down what you owe.

Include your minimum monthly payments, and the interest rates.

2. Determine how much you can realistically pay toward your debt each month.

Take your income and subtract your financial obligations, including household bills, savings, food, as well as the minimum payments for your debt accounts. The amount left is what you can spend on paying down your debt. If you have nothing left, look for ways to cut everyday expenses to come up with a little extra.

Need help? Try our Budget Calculator

3. Determine how best to use the money you have to pay down your debt.

Decide how best to approach paying off your debt. This will depend on the amount of money you have, how much you owe, and how many accounts you need to pay off.

If you can handle the number of bills you have and their due dates, you might consider the “snowball” approach. With this, you rank your debts by highest interest rate (you can leave out long term loans like mortgages, education and auto loans). Then start paying down your highest interest rate debt first, allocating as much money as possible to that account while still paying the minimum you owe on any other debts on time. Once that balance is gone, apply the money to the next highest-rate debt and so on until you’re debt free.

If you want to include long-term debts, larger debts or want to minimize the number of bills you pay, consider debt consolidation. With this approach, you consolidate all your balances into a single, lower-rate account, that simplifies recordkeeping and makes it easier to pay on time. It may also help reduce your monthly payment amount and could save you money on interest charges over the long run. Depending on your situation, there can be several consolidation options.

Find the Right Debt Consolidation Plan

Start at home, by refinancing your mortgage or using your home’s equity.

When you refinance, you pay off your home loan and replace it with one that helps you reach your goals. You can access cash with a cash-out refinance to pay for home renovations, major expenses, or to pay off higher-interest debt. This is a good option when you can get a lower interest rate or decrease monthly mortgage payment, so more money is available for other expenses.

If you have available equity in your home, you may be able to borrow against it to consolidate your debt. A home equity line of credit typically has lower rates than most credit cards, and you can choose principal and interest or interest only payment options.

Use a quick and easy loan to pay off debts over a specific time period and build your budget.

A personal loan may be a good choice for larger debts. It gives you a fixed interest rate, a fixed monthly payment, and a specific time line for paying off your balance. Since the loan amount is only what you need to pay off your debt, it also helps prevent the temptation of running up more debt.

Pay off debts over time and have financial flexibility.

Here are two good options for keeping access to credit as you pay down your debt: using a credit card balance transfer; or a preferred credit line.

When you transfer your balances to a single credit card, you can pay down debt with fewer bills, and still have the flexibility to use the leftover balance on your card for purchases if needed. This can be a particularly good option for moderate debts. Look for a credit card1 with low rates, special balance transfer offers, and 0% introductory APRs. Set up automatic payments in online and mobile banking to pay your debt off within the 0% APR window, to stay on top of payments and save as much as possible.

A preferred credit line could help you pay down higher interest debt and be ready for unexpected or larger expenses. With a preferred credit line, you’ll consolidate your debt into one payment and have continuous access to credit with flexible monthly payment options.

Keep Moving Forward

Whichever method you choose, stick to your plan until your debt is gone. Then make sure you don’t let yourself fall into old habits. Consider taking the money you were using to make debt payments and put it into an emergency savings fund. That can be your go-to source of funds when unexpected expenses arise. And stick to a budget that ensures you spend less than you make — so you can keep moving forward in good financial health.

1

The 0% introductory APR does not apply to cash advances and is valid for the first 15 billing cycles on purchases and balances transfers. Thereafter, the APR may vary. Currently, the undiscounted variable APR for Purchases and Balance Transfers is 11.49% to 21.49% (depending on your credit worthiness). Balance transfers must be made within 60 days of account opening for introductory APR to apply. The variable APR for Cash Advances is 25.49%. Cash Advance fee: 4%, $10 minimum. Convenience Check fee: 3%, $10 minimum. Cash Equivalent fee: 4%, $10 minimum. Balance Transfer fee: 3%, $10 minimum. There is a $.50 minimum finance charge where interest is due. Overdraft Protection Transfer fee: $10. Foreign Transaction fee: 3% of the amount of each foreign transaction after its conversion into U.S. Dollars. Transactions originating in Canada are excluded from this fee. The creditor and issuer of the Latitude Mastercard credit card is KeyBank N.A., pursuant to a license from Mastercard International Incorporated. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated. Variable rates after introductory period as of 10/31/2019, based on credit worthiness.

The creditor and issuer of the Latitude Mastercard credit card is KeyBank N.A., pursuant to a license from Mastercard International Incorporated. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated. Variable rates after introductory period as of 8/1/2019, based on credit worthiness.

“Making a Plan to Get Out of Debt,” LaToya Irby, The Balance.com, posted Sept. 18, 2016, https://www.thebalance.com/debt-habits-to-avoid-960829, accessed Jan. 25, 2017

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

By selecting any external link on www.Key.com, you will leave the KeyBank website and jump to an unaffiliated third party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.

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