What debt management tool is right for you?

Debt is a fact of life for many Americans.

The average credit card balance in 2023 was $6,501, with 49 percent of cardholders surveyed by Bankrate carrying a balance from month to month.

If you want to pay off your debt, you might not know where to start. Between managing your finances, making the minimum payment and keeping up with interest, paying off debt can be a long journey that takes discipline and dedication.

There’s no one way to tackle debt. While multiple methods, tips and techniques exist, you don’t have to limit yourself to one path to debt repayment. Instead, you can approach paying off your debt like a construction project: with a toolbox.

Approaching debt with a toolbox mindset

When a plumber fixes a sink or a carpenter builds a cabinet, they don’t rely on just one tool. Instead, they bring a fully stocked toolbox and use different tools based on the project’s needs.

Debt repayment can work similarly. Methods like managing your budget, debt consolidation, debt relief and more can all be used in tandem to make your debt repayment journey more manageable and to pay off your debt more quickly and effectively.

Approaching debt with a toolbox mindset means knowing which tools work best for you and your situation. Some tools — like budgeting — will be the foundation of your repayment plan, while others — like deferment — can help you in more specific circumstances.

Knowing your available tools and how they apply to your debt and finances can help you stock your box and build a versatile payment plan that works for you.

While the tools you use will depend on several factors, knowing what’s available is key to keeping your toolbox stocked and your options open as you pay off debt.

Everyone’s toolbox and how they use each tool will depend on their situation. In general, the key tools you’ll want to pay attention to are:

• Budgeting and debt management. Managing your finances and your cash flow will be the bedrock of paying off your balance, setting a timeline and determining where you might need assistance.
• Refinancing and consolidation. Consolidating multiple debts can make payments easier, and refinancing can lower your interest and payment for a quicker payoff timeline.  
• Building a support system. Having friends, family and government aid can help you save money and give you a fallback option as you pay off your balance.
• Talking to your lender. Setting up a payment plan or asking for deferment or forbearance can give you some breathing room if you’re having trouble making payments.
• Debt relief. If you’re struggling to pay off your balance, debt settlement can help reduce your payments and help you get your debt under control.
• Credit repair. Fixing your credit during and after you pay off your debt can help you manage your balance, open up more options and stay out of debt in the future.

As mentioned above, these tools can be used in conjunction with each other rather than simply working alone.

What tool is right for you?

Like a skilled trades professional, you need to understand the project you’re working on before selecting the right tool. In this case, knowing your debt — and the finances around it — can help you determine which techniques will work best.

You’ll want to consider the following factors with your debt and finances.

Type of debt

There are two primary types of debt to consider: secured and unsecured debt.

Secured debt involves a hard asset, such as a cash deposit, your house or your car, backing the loan with the lender. When you take on the debt, you agree that the collateral can be seized in the event of nonpayment, which allows the lender to recover some of the funds they lent you.

Unsecured debt, however, will have no collateral to back it, often leaving the borrower with the balance if they go into default. Unsecured debt includes student loans, credit card debt and certain types of personal loans.

Loan types can determine what options you have available for payoff, default and relief. Secured debt, for example, is not typically eligible for debt settlement, as borrowers will seize the collateral instead of negotiating down the balance.

Amount of debt

How much debt you’re in will influence your payments, interest and what debt relief and modification options you’re eligible for.

For example, if your debt is a few thousand dollars or less, your payments will be smaller and you may be able to pay it off quickly if you follow an aggressive repayment plan. However, it may also disqualify you from certain debt relief and consolidation programs.

Larger debt amounts will cost you more in monthly payments and interest. While you may be qualified for more debt relief programs, you may be disqualified from other types of debt modification like balance transfers.

Number of debts

Multiple debts can create a mixed bag in terms of repayment. More than one balance can make your payments complicated to navigate and make you a prime candidate for consolidation.

On the other hand, having multiple debts with low interest rates can save you more money than one loan with a higher overall interest rate, making repayment methods like the snowball or avalanche techniques more viable.

Age of debt

How old your debt is — along with how many payments you’ve made on it — will affect your access to certain options when it comes to managing your debt.

For example, you may have to wait a few months to refinance or consolidate your debt after you’ve taken out a loan. Certain debt forgiveness plans will require you to have made a certain number of payments on your debt before you qualify, and some debt relief programs may require your debt to be a certain age before you can enter the settlement process.

Income and expenses

Your income and expenses play a major role in how quickly you can pay off your debt, along with what programs you’re eligible for.

If you’re bringing in a high income relative to your debt, you may be able to pay off your balance quickly by cutting down on other expenses for a few months. A high income can also disqualify you from certain debt relief or aid programs.

While a low income can qualify you for debt relief or financial aid, you may have a harder time making payments and balancing your budget.

Payment history

Making your debt payments on time can give you access to more options for debt management.

For example, if you’ve never missed a payment on an account, you may have an easier time negotiating deferment with your lender.

Credit score

Your credit score can also determine what options are available to you.

Refinancing and consolidation will generally require a minimum credit score to qualify, and you’ll be able to get a better interest rate with a higher credit score. You’ll also need a credit score on the higher end if you want to qualify for a balance transfer card.

Next steps

Approaching debt with a toolbox mindset can help you pay off your debt more quickly, and tackle your balance in a way that works for you and your budget. Using multiple methods to pay off your debt can take some time and research, but can work in the long term to pay off your debt for good.

Learn more about the Debt Toolbox and what tools you can use to pay off your debt on Bankrate’s Whole Human Finance page, or click the next article in the series at the bottom of this article.