Tackle Debt with These Money-Smart Strategies

COVID-19 has led to massive layoffs or reduced work hours, making it harder for many to keep up with student loans and credit card bills. If you're among them, here are some resources and advice on how to deal with debt.

Credit cards. Let your credit card issuers know immediately if you're having difficulty making payments. Many have hardship programs that offer relief, such as temporarily waiving fees or lowering your interest rate — if you reach out to them and ask for help.

But even temporary relief may not be enough to eliminate your debt entirely. To do that, try one of these two popular debt-reduction methods: the avalanche and snowball.

• With the avalanche method, you put extra money toward the credit card with the highest interest rate, while continuing to make minimum payments on your other cards. Once that card is paid off, tackle the card with the next highest interest rate, and so on. This will lower the amount you pay in interest over time.
• Under the snowball strategy, extra money is applied to the card with the smallest balance. Once that card is paid off, you pay off the card with the next lowest balance, and so on. Eliminating smaller debts quickly can be just the motivation that some people need to continue chipping away at debt.

Student loans. Borrowers with federal loans have been awarded a reprieve during the crisis. After initially suspending payments and interest through the end of September, the government recently extended this relief through Dec. 31, 2020. If you would still like to make full or partial payments during this period, contact your loan servicer. The payments will be applied solely to your principal, allowing you to pay down the debt more quickly.

If you're still having trouble meeting payments once the relief is over, Uncle Sam offers a few options; visit the Federal Student Aid website. For example:

• You may qualify for one of several income-based repayment options that adjusts your  payments based on your discretionary income, and erases outstanding balances in 20 or 25 years, depending on your loans.
• Or you might be eligible for loan forgiveness. Full-time government workers who make 10 years' worth of on-time payments can have loans erased under the Public Service Loan Forgiveness Program. And teachers may be eligible to have up to $17,500 in federal loans eliminated under the Teacher Loan Forgiveness Program.

If you're struggling to repay private loans, contact your loan servicer to discuss your options. And to see how to lower the total cost of debt by paying it off sooner, getting a lower rate, or minimizing debt to begin with, check out our Deal with Debt calculator. Also see Employment Transition: An Action Plan for additional tips and resources.