Set Up From a Lender or a Bank

Do either of the methods described in the Quick Look section above set up an automatic payment. This automation will make it easier to make progress toward paying off your debt. Here are a few tips to optimize this process.

Tips for Your Automatic Debt Payoff

• Time Your Payment: Make your payment at a time of the month that works well for you. You’ll get your statement at the same time each month but there will be a window between the statement arrival date and the payment due date, sometimes up to a month. And you can set up your automatic payment for any time in that payment window.Consider setting your payment to come immediately after you get a paycheck, or in the middle of the month when you don’t have other bills to pay. Whatever time you set just make sure it works for you.

• Make Your Payment Round: By this we mean, if your monthly payment is supposed to be $237.45, consider rounding that number up to $250 or even $300 if you can. Not only will this small round up mean you’ll pay off your debt a little faster, it will also be easier to mentally calculate how you’re tracking on your monthly goals or whether or not you’ll have enough in your account to pay the amount due on the required date. When it comes to personal finance, simple math is almost always better.

• Student Loan Pro Tip: If you set up an automatic payment for your student loan, many lenders will actually reduce your interest rate by 0.25% just for setting that up. This means more of your money can go toward paying down the principle you borrowed instead of paying interest to the lender. Even if your lender doesn’t advertise this benefit, call them an ask anyway! Simply say, “I’ve heard that some lenders will reduce the interest rate if I set up an automatic payment. Is this something you do too?”

Set That Date

Research shows that when you set a date for achieving a goal, you are more likely to do it. In fact, in the SMART goals framework, the “T” stands for “Timely.” Therefore when it comes to your debt, you want to know precisely when you’re going to pay it off.

When you calculate your debt payoff dates, you may have one of two reactions (and both can be useful).

1. Pleasantly Surprised: Because debt can feel overwhelming, it’s not uncommon to ignore it and just pay whatever you have to, and slowly chip away at it (this can be particularly true if you haven’t consolidated your debts). But when you take the time to calculate when you’ll actually be done paying it off, something that once felt like it was going to take forever, may now feel like it’s within your grasp to pay off in the near future.
   
   If you find yourself in this position, you may be motivated to up your payments or, if possible, make a one time lump sum payment to be rid of it entirely. At the very least, you should feel a sense of satisfaction for seeing how far you’ve come.
2. Scarily Shocked: If you find yourself feeling this way after you’ve calculated your payoff dates, take a moment and remember this: Many have been in your exact position before and come out the other side. You too can get there. Additionally, you’re already taking the first and most difficult step: you’re facing your challenge head on.

If you find yourself in this position, use the MoneySwell Budget Planner tool to figure out what changes you may be able to make to your income or spending so you can pay your debt off faster. (Consider adding a row within the “Spending” category for your debt minimum payments. Then, add a row in the “Savings” category that represents extra debt payments.)

Action

In the notes section above, write down your:

• Original debt payoff dates before any adjustments you may make
• Planned debt payoff dates after adjustments you may make
• Actual debt payoff dates once you’ve done it

Believe it or not, research shows that taking small steps like those listed above can make a big difference in ensuring you achieve your goals.

It’s All Relative

Interest rates fluctuate so the term “medium-interest” is relative. But generally speaking, rates between 5% and 12% may be considered “medium-interest.” Depending on the balance owed and how long you hold it, this type of debt can cost you a very significant amount of interest over time. But unlike high-interest debt (which may have interest rates more than twice as high), carrying this debt for a while is not likely to be crippling to your financial health.

Common Examples of Medium-interest Debt

Your rates may vary but the types of debt listed below often have interest rates in the “medium” range.

Type	Average Interest Rates* (according to Bankrate.com as of February of 2025)
Student Loans	Federal student loans may have lower rates than private student loans and private rates can vary significantly. According to credible.com a10-year fixed-rate private student loan was 7.34% while a five-year variable-rate loan averaged 12.58%
Auto Loans	These loans may start with an introductory rate that is low but jumps into medium-interest once that period ends. According to Bankrate.com, the average APR for a new car with a 60-month loan may have rates ranging from 6.00% and 9.00%, depending on your credit score, while the average APR for a used car with a 60-month loan is 5.5% to 8.00%.
Personal Loans	These loan rates may vary widely (3 to 36%) depending on the amount borrowed, term for the loan (payback duration), your credit score etc. As of February 2025, consumers with good credit (690 to 719 credit score) faced an average interest rate of 15.92%.
Home Equity Loans	The range can vary based on your credit score, the amount borrowed, and more. According to Bankrate.com, the average Home Equity Loan Rate is around 7.5% as of March 2025.

Term Lengths for Medium-interest Debt

Another distinguishing feature of most medium-interest debt is that it likely has a term length. In other words, in the borrower’s agreement you signed when you took on the debt, you agreed to pay back the entire loan principal, plus interest, by a certain date.

(This is different from credit card debt for example, where your only payback requirement is a monthly minimum payment often based on the total percentage of your current balance.)

With a term length, the lender will automatically calculate your monthly payment amount so that the loan will be paid off in full – including the interest they charged you – by the term end date.

If you review your statement, you’ll see that with each payment, the monthly amount you pay is fixed but an increasingly larger percentage of your payment will go toward the principal and less toward interest. Therefore, if you are able to pay more than the amount required each month, you will pay down the loan before the term’s end date and end up paying less total interest.

Opportunity Cost

Let’s be clear: All interest-bearing debt costs you money. In a perfect and simpler world, having no debt would be best. However…

Imagine you have $10,000 in debt with a 4% APR and a term length of 5 years. Now imagine you get an unexpected $10,000 financial windfall. What should you do? Should you pay off your debt immediately, or should you invest that money? Here’s how it could play out:

Scenario	Charged Interest Rate/Rate of Return	Interest Savings/Earnings
Pay Down Debt Immediately	4% (charged)	You would save $1,049.91 in interest costs you would have otherwise paid over five years.
Invest the Money in an Index Fund	7.5% (annualized compound rate of return)	You could earn $4,356.29 after five years.

In the example above, you would be better off by $3,306.38 at the end of five years if you invested the money. The main difference is that by paying down the debt immediately, you’re guaranteed to save $1,049.91 whereas if you invest the money, you may or may not get a 7.5% rate of return. It could be much better but it could also be a lot worse (you could even lose money). Therefore, you have to find the balance that feels right for you based on your personal risk tolerance and the investing opportunities available to you.

But, if your debt is under control, if you have a certain level of financial discipline (as in, you will actually invest the money you have and not spend it), and if you are ok with some risk, there may be times when investing extra cash (either monthly or through a one time lump sum investment) may make more financial sense than paying off the debt as fast as possible.

Financial Priorities

In the Growth stage, you will focus your attention on growing your emergency fund, funding your long-term savings, and paying down medium-interest debt. Each of these deserve some of your financial resources. But that precise balance may depend on your specific circumstances and your other financial priorities.

Ask yourself which of the statements below resonate with you and how it might affect your approach to paying down medium-interest debt.

• It’s important for me to save liquid cash for a home down payment (or other significant cost) I plan to make in the next few years.

• My job situation is less stable than I’d like and having a larger emergency fund sooner will help me feel more secure.

• It’s important for me to maximize my retirement savings so I can retire more comfortably or earlier. The earlier I invest, the longer my time horizon and the more likely I am to achieve a good rate of return.
• I’m tired of having this debt and I just want to be rid of it! I’ll double down on other priorities once this debt is gone!

There’s no right or wrong way to feel about the statements above. But the more you know why you’re allocating your resources in a particular way, the more likely you are to stay the course and achieve the results you desire.

Take Action

In the notes section above (logged in users only), write a sentence about how you plan to tackle your medium-interest debt and why you plan to tackle it that way.

You’ve come so far! (Don’t stop now.)

If you have paid off or are about to pay off all your medium-interest debt (with the possible exception of medium-interest but long-term debt, like a home mortgage), you may not realize it but you are on the cusp of making huge strides to improving your financial health. But you have to continue the habits that brought you to this point in the first place.

One of the hardest parts of personal finance is staying away from lifestyle inflation. Sometimes this can happen when you get a new higher paying job or a raise. Before you know it, you’re eating out more and have slightly nicer clothes but your financial health is no better than it was before your new job or raise.

A similar thing can happen when you pay off your medium-interest debt. All of the sudden you have extra money each month that you’re not using to pay a lender. It’s tempting to think, “I paid off my debts! Now it’s time to have some fun.” And you know what, you’re right! You did work really hard to pay these debts off and you do deserve to celebrate that. We’d just encourage you to do it within reason and do it consciously. 

Make Your Plan

So take a moment and make your plan. How will you celebrate your accomplishment? Will it be to take one, two, or three months of equivalent debt payments and treat yourself to a nice night on the town, a new piece of athletic gear or clothing, or even a mini vacation? Or will you simply take a portion of what you used to pay toward debt, maybe 25% or even 50% and use it to improve your day to day life going forward? This might mean a few more luxuries with eating out or even moving to a nicer apartment. 

Ultimately, the choice is yours and only you can decide what feels right for you. But don’t forget about your medium and long-term goals like increasing your emergency fund, saving for retirement, future life events like a wedding, having children, buying a new car etc. 

Remember

The less you use your newly available “extra” money to increase the costs of your life today, the more you can set yourself up for a future of true financial abundance tomorrow. Because when it comes to things like investing, taking advantage of compound interest, or putting money away for future expenses, the best time to start saving was yesterday. But the next best time is right now. It’s up to you to strike the right balance between living for today, and setting yourself up for tomorrow’s success.