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If you are grappling with debt, you are not alone. The average American, for instance, is currently carrying $7,951 in credit card debt. But that doesn’t mean you have to live saddled with owing money and being charged high interest rates.

There are ways to make debt payoff happen faster. Read on for three strategies that can help you repay what you owe ASAP.

1. Figuring Out Your Budget

The first step to solving any debt problem is to establish a budget. A budget is essentially a summary that compares and tracks your income and expenses for a period of time, typically one month. A budget also allows you to plan how much you will spend and save each month.

You’ll want to first gather all of your bank and credit card statements for the last three or more months. You can then use them to figure out your monthly income (after taxes) and also list all of your monthly expenses. (You can do this using pen and paper, a spreadsheet or a budgeting app.)

You may want to group expenses into categories (such as insurance, groceries, eating out, insurance), and also divide them into essential vs. nonessential spending. From here, you can total your average monthly income and average monthly spending, see how they line up, and then consider making some shifts in your spending.

You might consider the 50/30/20 budget as a simple way to reorganize your finances. This budget allocates 50% of your income for essentials, like rent and bills, 30% toward nonessentials or “wants”, and 20% for savings and debt repayment.

If you need to free up more money to put towards debt repayment, you may want to look at your nonessential spending to find ways to cut back, such as ditching your cable bill, cooking more and getting take-out less often, and canceling your gym membership and working out at home.

Decreasing discretionary spending tends to be the easiest way to generate a monthly surplus. That surplus can then be used to pay off your debt faster.

If you find that you’ve been spending more than you earn by using credit cards, you may also want to make a plan to stop using those cards while you go after lowering your outstanding debt.


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2. Choosing the Right Repayment Plan

Once your budget is set up, a great next step is to list all of your debt (with amounts owed) and in order of interest rate, and then come up with a manageable plan to pay them off.

Some options that can help you pay off debt faster include:

The Snowball Method

The snowball method is where you focus on paying off your debts in order from smallest balance owed to largest.

You can do this by paying the minimum on all your debt and then allocating any extra money you have to the debt with the smallest balance.

•   Once the smallest debt is paid off, you can take the money you were

•   putting toward that debt and funnel it toward your next smallest debt instead.

•   You then continue the process until all your debts are paid.

The key benefit of this method is that it allows you to experience a series of small successes at the beginning. This can give you more motivation to pay off the rest of your debt.

The Avalanche Method

Another effective debt elimination strategy is the avalanche method (also known as debt stacking). With this approach, you would pay off your accounts in order from the highest interest rate to the lowest.

•   You would make the minimum payment on all of your accounts, then put as much extra money as possible toward the account with the highest interest rate.

•   Once the debt with the highest interest is paid off, you can start paying as much as you can on the account with the next high interest rate.

•   You would continue the process until all your debts are paid.

Putting Extra Cash Toward Debt-Reduction

Once you have an emergency fund (that can cover three to six months of living expenses) in place, you may want to funnel any extra income you receive right into your repayment plan in order to pay off debts faster.

That extra might be a bonus you receive at work, a tax refund, any side hustle income, or cash earned from selling items you don’t need — all of this money could go directly toward your debt payoff.

Putting this money toward your debt, instead of saving it for a new car or spending it on a vacation, can help you pay off your debt quicker so you can eventually shift your financial focus to more fun goals.

Recommended: Understanding Purchase Interest Charges on a Credit Card

3. Looking Into Debt Consolidation

Another option you may want to consider is rolling multiple debts into one payment (ideally with a lower interest rate) through debt consolidation.

This can make your debt easier to manage (because you’ll only have one monthly bill) and less expensive overall. The less you have to pay in interest, the more money you can put towards reducing the underlying debt.

•   One way to consolidate debt is to get a 0% interest balance transfer credit card and then transfer all your debts onto this card. Typically, you will have six to 24 months of no interest during which time you can pay down your debt. Just read the fine print to be clear on what interest rate you may pay on new purchases and when the interest-free period ends.

•   Another option is to get an unsecured personal loan. In this case, you would use the money from the loan to pay off your debt, then pay back the loan in installments over a set term. Typically, these loans can offer a significantly lower interest rate than what credit cards charge, but shop around and carefully review your options before signing up.

The Takeaway

If you’re looking to pay off your debt faster, it’s a good idea to take a look at your spending and income, find some ways to reduce your non essential spending, and then funnel any money you free up towards your debt repayment plan.
By sticking with your budget and payoff plan, you may soon be taking the money that you were spending on interest and putting it into savings for the things you really want.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL1223024

Most of us have debt, whether that means a student loan, a car loan, a credit card balance, or a combination of these. Although there are plenty of good reasons to take on debt, such as affording your education, buying wheels to get to work, and charging clothes to wear on the job, face it: Debt has a way of piling up, and that interest can keep ticking northward.

To deal with debt, it’s wise to be proactive about paying it off. Luckily, there are plenty of great resources and techniques to help you create your debt payoff plan — but only you will know what’s best for your unique financial situation.

While none of this is meant to replace financial advice from a professional, here are a few tips to consider. They can offer solid advice on techniques to help crush your debt.

Customize Your Debt Payoff Plan Approach

The words “snowball” and “avalanche” might sound like an increasingly alarming day on the mountain, but they also apply to three popular debt payoff methods, one of which may be just right for you.

•   The snowball method entails paying off your debts in order from smallest to largest, regardless of their respective interest rates. By getting that smallest debt paid off quickly, you may well feel a surge of motivation to keep on going with your debt repayment plan.

But people using the debt snowball method, beware: Ignoring interest rates usually means paying more money in the long run.

•   If savings is your main priority, you’ll probably want to look at the avalanche method, which has you putting more money toward your higher-interest rate debt first. Not only does this avalanche method save you money, it can also help you get debt-free sooner.

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Try a Debt Detox

People often compare getting fiscally fit with getting physically fit, and with good reason. Whether you’re trying to achieve financial goals or health and fitness goals, you’re more likely to succeed if you have a good plan in place, a fair amount of willpower, and a desire to change your habits.

You might try what’s known as a spending fast, and only buy necessities for a month or two (or longer) and see how much you can save. The funds you accrue can go towards your debt. Seeing that debt shrink can inspire you to keep going.

Or you might try a technique such as only using your debit card or cash, to help you avoid more high-interest credit card debt.

Amp up the Minimum

Another approach for a debt payoff plan is to pay more than the minimum payment each month. Whether you have student loans or credit card debt, paying more than the minimum can help accelerate your debt payoff journey.

It can be tempting to just stick with paying the minimum balance due rather than adding to it. But paying as much as you can each month (without stretching yourself too thin) can add up. In order to make this happen, however, you may have to make a few sacrifices.

Making coffee at home, cooking for yourself, or exercising outside instead of paying for a pricey gym membership are all small changes that can help save extra money each month to put toward your debt.

By increasing how much is allocated toward monthly payments, you could pay off your debt faster and therefore save on interest. And who wouldn’t want to be out of debt sooner?

Consider a Balance Transfer

Balance transfer credit cards sometimes offer low or 0% introductory annual percentage rate, or APR, periods for high-interest credit card debt transfers. Typically, you may enjoy 18 months of 0% interest, which can help keep you from accumulating even more debt via interest.

Reasons people apply for a balance transfer credit card include:

•   Having high-interest credit card debt

•   A desire to simplify payments on one card, rather than managing payments on multiple credit cards

•   Wanting to take advantage of a good promotional deal (for example, up to months of 0% interest).

But it is important to remember that this debt payoff strategy is optimal if you know you can pay off your entire debt by the time the low- or no-interest period ends. Otherwise, you will go back to accruing interest on your debt after the introductory period ends.

A credit card interest calculator can help you discover how much you are paying in interest alone on your credit card debt. This can help you evaluate how much you might save.

Recalibrate Your Rate

High-interest rate debt is not only expensive, it can also take forever to pay off. But just because your loan or credit card came with a rate that’s higher than you’d like doesn’t necessarily mean you’re stuck with it forever.

•   For one thing, if you have student loans, student loan refinancing is one option. When you refinance your student loans with a private lender, you are taking out a completely new loan with a new interest rate.

You can refinance both private and federal student loans with a private lender, but understand that if you refinance federal loans you will lose access to all federal benefits like deferment, income-driven repayment plans, and public service loan forgiveness programs. In addition, if you opt for a loan with an extended term, you may pay more interest over the life of the loan, so think carefully about whether it’s the right move for you.

If you have an improved financial profile from when you took out your original loan, however, you may be able to qualify for a lower interest rate. By obtaining a lower interest rate, you could save money over the life of the loan. Or you may be able to select a shorter term with higher payments but a quicker payoff — and save money on interest payments.

•   If you have high-interest credit cards, you can look into consolidating them with a low-interest rate unsecured personal loan. One plus of taking out a personal loan to consolidate your debt is that personal loans are typically installment loans, which means they have a fixed repayment period. That means you’ll know exactly when your loan will be paid off.

In contrast, credit card debt is “revolving debt,” which means you can continuously add to the debt even while paying it off. That’s not an option with a personal loan. By consolidating your credit card debt with a personal loan, you could also potentially qualify for a lower interest rate, which can make your debt easier to manage.

On the flip side, a personal loan may not be right for everyone. Some personal loans come with origination fees, late fees, or prepayment penalties, which could potentially drive up the cost of your loan. When shopping around for debt payoff solutions, you may want to consider any hidden fees that could come with a personal loan.

No matter what debt payoff plan you choose, the key is to take control of your debt rather than letting it control you. Ultimately, executing a successful debt payoff strategy might help you focus on the positive outcomes that happened as a result of your debt rather than the frustration of having to pay it back.

The Takeaway

Debt, especially when it’s the high-interest variety, can be hard to pay off. By trying such tactics as budgeting, reducing spending, and considering balance transfer credit cards and loan financing, you can likely get on a path to lowering and then eliminating your debt.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL1223022

The Consumer Price Index (CPI) is a monthly measure of how the aggregate costs of consumer goods and services in the United States are changing. Economists use CPI to help them understand whether the economy is in a period of inflation or deflation, and individuals can use it to get a sense of where prices might be headed.

What Is the Consumer Price Index (CPI)?

The CPI measures the change of the weighted-average prices paid by urban consumers for select goods and services, according to the Bureau of Labor Statistics (BLS). In other words, the metric tracks the rise and fall of prices over a given period of time.

Definition and Significance

As mentioned, “CPI” is short for Consumer Price Index, and it’s an often-cited economic indicator.

The BLS produces indexes that cover two populations: CPI-U covers all urban consumers, representing more than 90% of the population. And CPI-W represents urban wage earners and clerical workers, representing approximately 30% of the population. The CPI excludes people who live in rural areas, the military, and imprisoned people.


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How the CPI Works

The CPI tracks prices for a basket of goods and services people commonly buy in eight major categories, including:

•   Food and beverage

•   Recreation

•   Apparel

•   Transportation

•   Housing

•   Medical care

•   Education and communication

•   Various services

CPI Formulas

Each month, the BLS contacts retailers, service providers, and rental spaces across the country gathering prices for about 80,000 items. It uses this data to calculate CPI using the following formula:

CPI = Cost of the Market Basket in a Given Year/Cost of the Market Basket in the Base Year.

The result is multiplied by 100 to express CPI as a percentage. The BLS uses the years 1982-1984 as its base year. It set the index level during this period at 100.

Annual CPI Calculation

Here’s an example of the annual CPI calculation, and comparing two different years to get a gist of the differences.

Imagine the cost of a hypothetical basket of goods in 1984.

When you total the price of these goods you get $79. Using the CPI formula above you take $79/$79 x 100 = 100%. This is where the 1984 base rate of 100 comes from.

Now let’s consider the same basket of goods in 2023.

When you total the prices of these goods you get $216. Now, when you plug this into the CPI formula you get $216/$79 x 100 = 273%. You can now tell that from 1984 to 2023 prices for this particular basket of goods have risen by 173%.

Diverse Categories Within CPI

The CPI tracks more than 200 categories of items, and within each category it samples hundreds of specific items at various businesses which serve to represent the thousands of items available to consumers. In addition to these categories, CPI includes government-charged user fees like water, sewages, tolls, and auto registration fees. It also factors in taxes associated with the price of goods such as sales tax and excise tax. However, it does not include Social Security taxes or income taxes that aren’t directly related to the purchasing of goods and services.

The CPI also does not include the purchase of investments, like stocks and bonds.

The Consumer Price Index (CPI) in Practice

The CPI can be used in a variety of ways, but perhaps most prominently, in economic policy.

Usage in Economic Policy

The CPI is the most common way to measure inflation, the economic trend of rising prices over time, or deflation, the trend of falling prices. The federal government — or the Federal Reserve, more specifically — sets a target inflation rate of 2% annually, and the CPI can help the government understand whether or not its monetary policy is effective in meeting this target.

Recommended: What Is Deflation and Why Does It Matter?

The Federal Reserve’s Utilization

The Federal Reserve may look at the CPI to gauge whether or not to raise interest rates, which may cool or heat up the economy, accordingly, by increasing the cost of borrowing. As borrowing costs go up, demand for goods or services tends to fall, lowering prices, and putting downward pressure on the CPI.

Implications for Other Government Agencies

Economists also use CPI as a measure of cost of living, the amount of money you need to cover basic expenses, such as housing, food, and health care. This is important because the government may make cost-of-living adjustments to programs such as Social Security benefits. As the cost of living rises, benefit amounts may be adjusted higher to keep up with the rising costs of goods.

Employers may also look at the cost of living to help them set competitive salaries and determine when to raise wages for employees.

Recommended: Cost of Living by State

CPI’s Influence on Market Sectors

The CPI can also have an influence on market sectors, like the housing markets, financial markets, and even labor markets. As noted, a lot of it is top-down — depending on how the Federal Reserve reads the CPI and decides to change interest rates, if at all.

Raising rates can temper demand in the housing market, as a mortgage can become more expensive. It can also slow down sales for all sorts of businesses, which is reflected in earnings reports and finally, in the stock market. That can then spill into the labor market, and potentially raise unemployment as companies look to cut costs.

All told, the CPI’s influence can run deep in an economy.

CPI Versus Other Economic Indicators

The CPI is only one of many economic indicators, as mentioned. Others include unemployment, and the Producer Price Index (PPI).

CPI vs Unemployment: Understanding the Relationship

As noted, there tends to be a relationship between the CPI and unemployment rate, as the Fed targets 2% inflation, and full employment. As such, it can decide to make changes to monetary policy to try and restore balance or at least get closer to its goals.

CPI vs PPI (Producer Price Index)

The Producer Price Index or PPI measures the average change over time in the selling prices received by domestic producers of goods and services. In simpler terms, this metric measures wholesale prices for the sectors of the economy that produce goods. Like the CPI, the PPI can help analysts estimate inflation, as higher prices will show up on the wholesale level first before they get passed on to consumers at the retail level.

Analyzing and Critiquing the CPI Methodology

The CPI is a useful measure in many ways, but it does have some limitations. First, it doesn’t apply to all populations in the United States. CPI considers urban populations alone, so it is not necessarily representative of the costs for those who live outside of those areas.

Also, the CPI calculation does not take into account all of the goods and services available to consumers or new technologies not yet considered consumer staples. What’s more, the metric does not provide any contact into what’s causing prices to move up and down, such as social or environmental trends.

CPI’s Broader Impact and Usage

CPI reports are issued monthly by the BLS, and are available to anyone who wants to access them online. They give a broad breakdown of the previous month, and compare price changes year-over-year, and month-over-month.

Breaking Down the Monthly CPI Report

The standard CPI report has an introduction that discusses the changes over the previous month, followed by a table that outlines changes in specific price categories over the past year and several months. It further breaks down food, energy, and “all items less food and energy,” providing additional insight for each category.

Anticipating the Next CPI Report

The BLS publishes the date and time of the upcoming CPI report on its website, typically the second week of the month, at 8:30am ET.

Contemporary Relevance of CPI

In recent years, many people have kept a closely-trained eye on the CPI and CPI reports due to increased costs following the pandemic in 2020. While there were a variety of reasons as to why prices increased, that bout of inflation — the first serious case of inflation since the 1980s — caught many people off guard, and strained consumers’ budgets.

It also led to the Fed increasing interest rates. Inflation, or the increase in the CPI over the past couple of years, peaked at more than 9% during the summer of 2022, and as of late 2023, was back down to around 3.1%.

Educational Resources and Further Reading on CPI

There are numerous resources and places to learn more about the CPI, especially after all the attention it has garnered in recent years.

Learning More About CPI

A simple internet search will net a cornucopia of results, loaded with information and insight into the CPI. You’re also likely to find opinion pieces and other media discussing the CPI’s shortcomings or strengths — it can be a good idea to consider everything, and formulate your own opinion.

But in terms of learning more about the CPI itself, the BLS publishes a handbook discussing the concepts and methods it uses, which can also be helpful if you’re hoping to bolster your CPI IQ.

CPI-Related Statistics and Where to Find Them

The BLS publishes the CPI, and a whole host of data and statistics related to it. With that in mind, it can be a great place to start when hunting down CPI-related data. There are multiple other sources that utilize the BLS’ data to compile charts, graphs, and more, but typically, it’s all sourced back to the BLS.

The Bottom Line: Why the CPI Matters to Everyone

Rising inflation decreases the value of individuals’ cash savings over time. Investing in stocks, bonds and other investments that offer inflation-beating returns may help consumers protect the value of their savings. Understanding CPI, and how it’s moving, can help you devise a strategy for your investment portfolio.

The CPI can be a deep topic, especially when you consider how it intersects and relates to other elements of the economy, such as unemployment and interest rates. And again, the more an investor understands about the underlying machinations of the economy, the more knowledge they’ll have to power their decisions in the market.

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