Many Americans Are Getting Better at Paying Down Debt: What’s Their Secret?
Written by
Nicole Spector
Edited by
Jenna Klaverweiden
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The U.S. is a nation steeped in debt. According to Experian, the average total consumer household debt in 2023 was $103,358 — up 11% from 2020.
Though household debt is, in general, trending way upward, there’s also compelling evidence that many consumers are actually getting better at tackling debt. A new study by LendingTree found that Americans pay an average of $1,583 toward their debts each month — up from $1,233 in 2020.
This is great news, but it’s also a bit bewildering — and prompts the question: What’s their secret to paying down debt?
Here’s a look at some moves Americans are likely making to wipe out their debt and start anew.
They’re Creating Stricter Budgets
It looks like people are finally starting to practice what all the finance experts preach: aggressive budgeting.
“Many individuals have adopted stricter budgeting practices, closely monitoring their income and expenses,” said Taylor Kovar, CFP, founder and CEO at Kovar Wealth Management. “This helps in identifying areas to cut back on spending, freeing up more funds to allocate towards debt repayment.”
They’re Motivated by the Impact of Inflation
Inflation has been cornering more and more Americans into living paycheck to paycheck. One possible silver lining? Rising costs may have forced many to be a lot more careful with their money than ever before.
“I think with inflation over the last year or so, along with many households experiencing rising costs and economic uncertainty, household budgeting has become increasingly relevant to many Americans,” said David Kemmerer, CEO of CoinLedger.
“I think many Americans may also be experiencing the downsides of carrying debt for the first time, if their expenses have been a little tighter due to rising costs of living,” Kemmerer said. “So, some of this trend of Americans paying down debt may just be due to financial necessity and circumstances requiring better and more diligent financial management.”
They’re Using Either the Debt Snowball Method or the Avalanche Method
There are a few proven budgeting methods that many financial experts recommend. Americans may be embracing them, perhaps favoring, in particular, the debt snowball method and the avalanche method.
“The debt snowball method involves paying off debts from smallest to largest, regardless of interest rate,” Kovar said. “The psychological win of paying off smaller debts can motivate individuals to tackle larger debts, creating a ‘snowball effect.'”
The avalanche method is a different beast, but can be just as effective.
“Contrary to the snowball method, the avalanche method prioritizes paying off debts with the highest interest rates first,” Kovar said. “This approach can save money over time by reducing the amount of interest paid.”
They’re Turning to Debt Consolidation
Americans may be getting more familiar with the concept and potential perks of debt consolidation — bundling multiple debts into a single loan with a lower interest rate.
“This simplifies payments and can reduce interest costs,” said Andrew Latham, CFP, managing editor at SuperMoney. “Consolidating $15,000 of credit card debt through a personal loan at 6% interest, down from an average of 18%, could save you thousands of dollars.”
They’re Putting Bills on Autopay
Finance experts almost always recommend setting up automatic payments.
“This ensures that bills are paid on time, avoiding late fees and potential damage to credit scores,” Kovar said. “It also helps in maintaining a consistent payment schedule, which is crucial for debt reduction.”
They’re Making Large Debt Repayments on Time
Erica Sandberg, personal finance expert at CardRates.com, shared a secret that could be helping Americans pay down debt more aggressively: making big, timely payments on credit cards — a move that could possibly land you a lower APR.
“If you make such large, on-time payments, you may be able to inspire your credit card issuer to lower the APR,” Sandberg said. “If so, you will save money on financing fees, since more of your payment will go toward the principal. After six months of such an assertive repayment plan, return to the issuer and appeal for a lower APR.”
They’re Embracing Balance Transfer Offers
“Credit card users have increasingly taken advantage of balance transfer offers, which allow them to move high-interest credit card debt to a card with a 0% introductory APR,” Kovar said. “This can provide a window of opportunity to pay down the principal without accruing additional interest.”
They’re Building Emergency Funds
You’d be hard pressed to find a financial expert who doesn’t highlight the importance of an emergency fund — and it sounds like plenty of Americans are listening to these gurus and taking action.
“Establishing an emergency fund is a widely used precautionary measure to avoid falling into unnecessary debt due to unforeseen circumstances,” said Adam Garcia, owner at The Stock Dork.
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