Debt Repayment
02.15.2021 By Amelia O’Rourke-Owens

4 Key Mindset Changes To Make When Paying Off Debt

When you decide to prioritize paying off debt, it can feel really great and really overwhelming at the same time. The good news is that you can be well on your way to being debt free with a few key changes.

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Debt Debt Repayment

There are many ways to approach the act of paying down your debt— like paying off your smallest debt first or the debt with the highest interest rate. But America Saves has identified four mindset changes you'll need to embrace throughout your debt repayment journey to be successful.

1. No More Borrowing

You may think this would go without saying, but it does need to be said. The first step in getting out of debt is to stop borrowing. Limit your spending to what you have available in cash.

2. Make A Plan

Once you've committed to only spending what you can pay in cash, then it's time to make a plan. This is the time to get a clear view of your finances: your income, your expenses, what you're saving for, and assessing if there are any changes you want to make. Use the America Saves Spending & Savings Tool for a simple way to review your budget.

As you're using the Spending & Savings Plan tool, identify which debts to pay off first, and pay the most you can afford to contribute monthly. Then stick to the plan! 

While you're analyzing your finances, ensure that you are practical and realistic about what you can afford to pay each month and that you are paying off your debt with a strategy. 

3. Explore Your Repayment Options

You may be able to negotiate a more affordable payment plan with your lenders. Make a phone call to find out your options. For example, student loans might offer an option for income-based repayment or a means to apply for forbearance, which may buy you time before your next payment is due. If you have a large outstanding balance on a utility bill, most gas and electric companies will also work with you and create a payment plan.

One word of caution if you're considering a forbearance agreement for debt: they often come with a nasty price tag at the end of the forbearance period. "Oftentimes, forbearance allows you to delay payment, but then the money is due as a lump sum at the end of that period," Robin Saks Frankel, Forbes Advisor, and Personal Finance Expert, cautions savers.

4. Stick To Cash Purchases When Possible

Once you've paid off your debts, be very selective about when you use credit to make purchases. Large purchases, such as mortgages and auto loans, are fine, but when it comes to credit cards if you can pay it in cash, do so! 

Another tip from Tom Quinn, VP of Scores at FICO, is to keep your credit cards open— don't close them once they're paid off. That helps maintain your credit score, but it could be tempting to use your cards. So, stick to cash purchases when possible.

One strategy in making cash more readily available is to take the money that you were paying towards your debts and direct it towards a savings account. This will build you a nice cushion and give you more access to cash in case of emergency, or if there's a fun purchase you want to make— without relying on credit.

Keep it going

Whether you're getting out of debt one loan at a time or paying down your debt to raise your credit score, keep the momentum up. It could seem daunting initially, but when you start small and think big, it all adds up! Every payment gets you closer to your goal of being debt-free.

Want support and accountability while reducing your debt? Take the America Saves Pledge and choose "Debt Repayment" as your savings goal. America Saves will send you tips, resources, and tools to encourage and motivate you along the way.

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