Most would consider debt a national crisis we are facing, with a majority of Americans holding at least some form of it. Despite the economic rebound since the 2008 recession, many people are still finding it difficult to crawl out from underneath their overwhelming debt loads. Owing too much money can limit an individual’s prospect for financial independence, making it difficult to achieve a comfortable retirement, or one at all. The five types of debt listed below are among the most common, but they can be addressed successfully if you are willing to put in a little hard work.
Credit Cards
Credit card debt, also called revolving debt, is one of the greatest plagues we face today. This kind of debt is one of the worst types to have, yet as of 2017, Americans held well over $800 billion in credit card debt. The best way to deal with this debt is to pay it off as quickly as you can. Interest on credit cards can be toxic, and quickly accumulates. It can be difficult to get ahead when you constantly find yourself only paying the interest and never any of the principal. Below are a few tips on avoiding this vicious cycle:
- Quite simply, always pay on time!
- Make more than the minimum payment whenever possible.
- Look into consolidating your credit card debts.
- If you lack discipline, start paying with a debit card or go cash only.
Personal Loans
Personal loans are loans that you take out with a bank and that you can use for just about anything you want or need. Their flexibility makes them an appealing option for many, however, the rates and fees attached can often make them cost-prohibitive. There are more quick loan companies online than fish in the sea, which is why you see increasingly stringent regulations around them. It’s because of the potential pitfalls associated with these types of loans, that you be as careful as possible when considering one.
- Only take out one personal loan at a time.
- Choose the shortest term possible to reduce interest.
- Pay biweekly instead of monthly.
Student Loans
A vast majority of college students graduate with loans these days thanks to high tuition fees and the inability of parents to continue footing the bill. However, you can make a concerted effort to manage your public and private loans with the tips below:
- Consolidate or refinance when possible.
- Check into loan forgiveness in your state.
- Choose an easier repayment plan.
Mortgages
Mortgages are typically seen as healthy debt, provided you are living within your means and your total house payments are not over 25 percent of your take-home pay. If you are looking for ways to pay off your mortgage early, consider these tips.
- Put any unexpected bonuses or tax returns into an extra house payment.
- Refinance to a lower interest rate.
- Make an extra payment towards principal every year.
Car Loans
Although it is ideal to purchase a vehicle with cash, the majority of people are not financially able to do that. Because vehicles quickly depreciate, they are most likely to be the most expensive asset you acquire in your lifetime that doesn’t add any value to your overall net worth. Though buying is often preferential to leasing, it is wise to purchase a car that is three years old rather than brand new. Most of the depreciation happens within those first few years. Regardless of the year, make, and model, your singular goal should be to pay down your car note in the shortest amount of time possible.
- Get rid of extra charges on your loans by removing special features and add-on fees from your loan provider.
- Refinance to a cheaper rate whenever possible.
- Increase your monthly payment amounts.