I Am Part Of The 80%. I Need Debt Help

Debt. A Mainstay In Modern America

Debt is a mainstay of today’s America. If you are part of the 80% of Americans who carry debt, the first question many people ask is what debt do I pay off first? how do I get debt help?

Where do I start? What type of debt do I pay off first?  Wait, there is different types of debt? The average American has $16,000 in credit card debt and $150,000 in total when you consider secured debt such as your mortgage or car.  We all must learn how to master our debt.

Debt can be overwhelming. Personally, I have been there with maxed out credit cards, high interest rates and no plan. My number was once over $26,450 in credit card debt.  What’s yours?

Over the last several years I have learned a lot about how to better manage, use and pay down debt.

Debt Help: Understand Different Types Of Debt

The first thing to know is there are two types of debt, secured and unsecured debt. Secured debt is where the debt is tied to an asset or collateral. The debt (or loan) is tied to the asset which gives the lender the right to take the asset if you cannot pay.  Examples include your car payment and mortgage. Secured debt (or loans) often come with a lower interest rate, longer periods and can even come with benefits. Consider home ownership where the U.S. federal government, thru the Internal Revenue Services encourages it through various tax incentives.

One of these incentives is the privilege to deduct from your income taxes any interest paid to a lender for a home mortgage.  Unsecured debt is debt that is not tied to an asset. This takes shape most often your credit cards, but may include medical expenses, utility bills or even student loans. They typically come with a higher interest rate because the lender has nothing of value to take if the bills go unpaid, rather not paying them wreaks havoc on your credit score and may limit your ability to borrow in the future.

Debt Help: Pay Secured Debt At All Costs

Managing debt can be tricky and down right exhausting. It can add up fast and get out of control quickly. In many cases it’s a choice on what to pay down first. My advice, prioritize secured debt first at all costs.  If you are choosing between paying your mortgage or auto loan vs credit card, focus on the secured debt first.  In many cases if you don’t pay it, it can lead to far bigger consequences, like not having a car to drive to work or a place to live. You don’t want to jeopardize your basic necessities or risk the income you will need to pay down your debts.

Debt Help: Understand Your Risks & Rates

Once you are able to manage your secured debt, make sure you better understand the types of unsecured debts you are dealing with.  First, make sure you understand the consequences for not paying down debt on time. For example, there are vast differences between not making your credit card payment, vs your student loans. As an example, not paying your student loans can lead to wage garnishment or other penalties. Also, consider your credit score impact. Different choices can dramatically impact your ability to borrow. As an example, if you are considering to purchase a home or new car, paying down your high balance cards first can make a big difference. The other key factor is interest rates, the amount charged for borrowing money.

All things equal, start with the highest rates first and tackle your credit card debt as quickly as possible while making minimum payments on your student loans.

Debt Help: High Interest Rates Or Low Balances

This next decision is a choice and is yours. There are two schools of camp on managing unsecured debts. One theory recommends to pay off your highest interest rates first others say pay off the lowest amounts first. Personally, paying off the high interest amount makes the most financial sense but personally I try to build small wins – pay off the low amounts first, consider closing unnecessary cards and simplify the debt load you are carrying.  I think this strategy helps you show progress and lets you build momentum and instill confidence.  Once you start, it will get easier.

There are also great tools out there to help you manage credit card payments and build a plan.  One that I recommend is the credit card repayment calculator by credit karma. Check it out here.

Remember that life is a game never won or lost, only played.