How to Ditch Your Debt Before the Fed Sets Further Rate Hikes


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With the first of seven potential federal interest rate hikes taking place in the past week, it’s a good time to assess your debt and see how you can pay it off quickly before rates skyrocket.

See: 19 ways to manage your budget and manage your debt
Find: Suze Orman, Dave Ramsey and other experts give their top tips for getting out of debt

The increase in the prime interest rate by the Fed will not necessarily have an immediate impact on consumer interest rates, especially if you have good credit. But if you have variable rate debt, like variable interest rate credit cards or even an adjustable rate mortgage, it’s time to prepare for another blow to your budget in the coming months, because these rates could increase.

Karol Ward, psychotherapist and confidence coach, recommends figuring out what will motivate you to pay off any debt faster. Are you motivated by punishment or reward? First, visualize what it would feel like to have to pay more interest, she told the Wall Street Journal. Then visualize the feeling of having all your debts paid off. “You’ll quickly recognize, either feeling energized or discouraged, which decision is right for you,” she said.

Once you’ve put yourself in the right frame of mind to pay off your debts, you can take more practical steps.

Take stock of your debt

Before you jump in, you’ll want to know exactly what you’re looking at in terms of debt. Find all of your outstanding balances, credit limits, and interest rates you’re currently paying.

Use a spreadsheet, whiteboard, or accounting software — whichever method works for you — to write down all the information.

Choose a refund method

Experts generally recommend one of two methods for dealing with debt: the debt snowball or the debt avalanche. By using the snowball method, you will pay the smallest credit card balances first. Once paid, you’ll take the payments you were making on that card and apply the money to your next highest balance, and so on. The snowball method creates psychological wins early on that will keep you going.

The avalanche method actually makes more sense from a practical standpoint, since you’ll focus on your higher-interest debt first. However, if you can lower all your interest rates with a 0% interest credit card or a home equity loan, the avalanche method may not be the best option.

Of course, in either case, you’ll want to continue making minimum payments on all your cards to preserve your credit score.

Try lowering your interest rates

It may be worth calling your creditors and seeing if they will lower your interest rates. They might be willing to work with you if you have good credit and have made all your payments on time.

Assess your budget

Now it’s time to free up some extra cash so you can make more than the minimum payments on at least one credit card. Evaluate your budget and see where you can cut corners. Can you eliminate one or more streaming services? Going out to restaurants less?

You could even go to the extreme and implement a “spending freeze”, a scenario in which you commit to buying only what you need for a month or more.

Benjamin Rickey, a Washington-based financial planner, suggested spending as little as possible and “selling any assets you don’t need right now,” which could include collectibles, he said. told the WSJ.

Consider debt consolidation

If your credit is good, consider consolidating your debt with a credit card with a 0% upfront APR or a home equity loan or home equity line of credit. Be sure to factor in balance transfer fees on the credit card — as well as appraisal and closing fees for any loans — to determine if the decision is worth it.

Learn: Student over-indebtedness: Could payments be suspended again as White House considers executive action?
Explore: Equifax, Experian and TransUnion to erase billions in medical debt from credit reports this summer

Having just one bill to pay, instead of several, can give you a psychological boost and help you feel more in control of your debt. Plus, the money you save on interest charges can go directly to paying off your credit cards and high-interest loans.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketer with interests in finance, e-commerce, technology, and real estate. His long list of publishing credits includes Bankrate, Lending Tree and Chase Bank. She is the founder and owner of, a travel, technology and entertainment website. She lives in Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten and three lizards of different sizes and personalities – plus her two children and her husband. Find her on Twitter, @DawnAllcot.


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