Financial Literacy Miniseries Part 2: Debt

If you currently have or have had debt, then you know there can be feelings of anxiety and frustration that can go along with it.

Whether you have credit card debt, student loan debt, or some other kind, you need to be aware of how much you owe, and how you are going to pay it back. It can be a horrific, grueling process that no one wants to deal with or think about. Unfortunately, you do not have much of a choice.

But, it does not have to be completely horrible! Debt is not all that bad. It is only bad when you find yourself unable, or struggling, to pay back what you have borrowed. Often times, people incur debt when they purchase things they cannot afford in the moment – such as a car, house, etc. Or, there are those of us who spend outside our means and are left scrambling when their monthly statement arrives. (Sound familiar?)

Thankfully, there are tools out there to help people who are struggling to make ends meet.

That’s where we come in. Though you will need to put in some effort, we hope that we can provide you with the information and tools to decrease and, eventually, eliminate your debt.

Thus, without further ado, here are some methods that we think can greatly help your efforts.

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Paying Down Debt:

There are plenty of methods to paying down your debt. We’re going to highlight the two that we think are the best. If you try these methods, and they are not working for you, then don’t be discouraged and try other ones!

  1. The Snowball Method: This method involves putting your debts in order from smallest to largest, regardless of interest rate. You will make the minimum monthly payments on all accounts, except the first.You will pay a bit more than the minimum required, and, by doing so, you will pay that first account off faster. The more you can pay, the faster you will pay it off. Once you have paid off the smallest debt, you take that money and allocate what you were paying and use it towards paying off the next smallest debt and so on and so forth. It’s just like doing the smaller, easier homework assignments. By paying off the smallest debt first, you can get that feeling that you are actually accomplishing something, and, hopefully, it will motivate you to continue chipping away at the debt you have.
  2. The Avalanche Method: This method is all about the interest rate. Interest rates can be a huge problem when eliminating debt because if you don’t manage your debt well, then the interest rates can increase your debt and create a whole new problem. For this method, you want to order your debts by interest rates – highest to smallest. Again, you will pay the minimum payment on all accounts but pay extra towards the account with the highest rate. Once that is paid off, allocate what you were paying to the next highest rate debt. Mathematically, this method will save you more money in the long run but could take a bit longer to eliminate the debt.

Though these methods are immensely helpful, they are not always enough when trying to keep organized and managing your debt. Thus, we have some additional self-help methods that can greatly assist you along the way.

  1. Create a Budget (Sound Familiar – See our last blog post about budgeting): With budgeting, it is all about knowing what you are earning and where it’s going. Creating a budget will greatly assist you in assessing when and how you will be able to pay off your debt. As soon as you figure out your monthly income and expenses, you will be able to determine how much money you can dedicate towards paying down your debt *see info above* and seeing where you can cut costs. As mentioned before, please visit out blog post about budgeting!
  2. Reaching Out: If you are having a difficult time making your payments, you should contact your creditor(s) immediately! If they are aware of your financial situation, it may prevent them from sending you to collections, and they might be willing to waive some late payment fees.
  3. Know Your Rights: No one wants to be harassed about their money. Thus, you need to know what debt collectors can and cannot do. For a nicely complied list, please visit this website from the Federal Trade Commission about Debt Collection.

Now that we’ve established some methods to paying down debt, you need some tools to help you calculate your debt and pay it off.

  1. Bankrate.com: To help you manage your debt, bankrate.com has some fantastic and free calculators. You can use them to figure out your balance payoff date, create a plan to pay off debt sooner or decide if consolidating is the right option for you. If you would like to use this tool, please visit their website!
  2. Credit.com: If you have a couple credit cards and are in debt, then this may be the tool for you. Like bankrate, credit.com is a payoff calculator, and it will help you play with monthly payment amount levels to find out how long it will take to be debt free. This tool is free, so utilize it! Check out their website to see if it is the right tool for you.
  3. Unbury.us: This is a very simple, yet effective, payoff tool. Use this tool to help get free from the clenches of debt. In fact, this handy tool lets you choose whether to pay off your debts using the Avalanche or Snowball methods. *see section above* If you would like to give it a try, please visit their website.

Well, there you have it. Debt does not have to be some scary thing always lurking in the background. As long as you keep up with your payments and are conscious of it, then you have nothing to worry about. We hope that you’ve found some value in this post, and if you have not already done so, we ask that you check out our previous blog post about budgeting or our Money Smart Seawolves website for more info!

If you’re in debt, and something doesn’t work out, don’t be discouraged! There are plenty more options from which to choose. If you try or have tried any of the options above, we’d love to hear about your experience in the comments section below! When it comes to debt, stay on top of it, stay informed, and, as always, stay SAVVY!

 

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