Tips for Tackling Your Debt Once and For All
Debt is, unfortunately, a fact of life for many Americans. Between mortgages, car payments, and credit cards, the vast majority of us have some amount of debt to our names. Even though the average person knows that staying in debt will only continue to hurt their finances and future prospects, getting out of debt for good is much easier said than done.
Recently LifeHacker compiled their top ten list of ways to conquer your debt. The first step before you can get to slaying your debt is to understand the difference between good and bad debt. Although some personal finance gurus are inclined to say that any type of debt is bad, LifeHacker poses two questions for evaluating if a debt is bad or not: 1) is it temporary or is it a lifestyle? 2) Is it worth it?
The logic behind these questions is that there are debts that are necessary evils. For example student loans may be required to complete your education and acquire a higher paying job. Another scenario is that you might take out a loan in order to start your own business. In both cases the debt is temporary and most likely worth it. On the other hand only covering the minimum on your credit cards without trying to pay them off is a lifestyle and definitely not worth it. These types of debts should be the first ones you knock out.
One of the most common ways to help pay down your debt is to consolidate or refinance it. A popular option is to transfer your credit card balance onto a new card which may include a temporary 0% interest rate. While this may seem attractive, the “temporary” part of the offer is what often comes back to bite many consumers. Many times a better option is to look into a personal loan to pay off your credit card debt. These loans will often have a lower APR than cards and are designed to be paid off in a certain amount of time.
A little-known fact is that in some cases you can negotiate your debt. Calling your credit card company and asking them to lower your APR (usually when you mention a different offer to move your balance to a 0% interest card) can be effective in helping you pay down your balance. Similarly some lenders may be willing to forgive a certain amount of your interest debt if it means getting their money faster. Of course this won’t always work, but it’s worth a shot.
An interesting suggestion from LifeHacker is to prioritize the debt that is most painful to you. While this will often mean the debt that is costing the most in interest, they suggest perhaps paying off debts to family members or friends that may be causing you personal strife before taking on more “faceless” debts. Depending on your situation this approach may make sense.
Lifehacker also lays out some different methods for planning your escape from debt (including The Snowball Method), but one element remains the same in each case: stop adding to your debt. This means changing your spending habits and eliminating waste. Ultimately this is the most important key to not only getting out of debt but staying out.
Debt is a burden that many of us carry. While it can seem insurmountable at times, the truth is that there are many ways to start lightening the load. By evaluating your spending habits, types of debt, and options for paying down those debts, you can be on your way to being debt free.