Effectively Managing Debt
Posted on August 5, 2021 at 4:02 PM by Brian Godwin
A recent survey found that 80% of Americans are currently in debt. And it’s not just individuals like us that deal with it; the United States’ National Debt is currently more than $28 Trillion dollars. That equates to more than $86,000 per citizen.
Living with financial obligation is obviously very common for all of us and given our current culture and lifestyles this trend is likely to continue. That is not necessarily a bad thing, as much of this debt helps us to enjoy our lives and to take care of our family. It allows us to purchase homes, cars, or to take a nice vacation. The key is to effectively manage the liabilities we all have.
A couple of suggestions for paying debt off more quickly are as follows:
Pay off the smallest debt first. By eliminating a payment entirely, it frees up additional funds to be applied to the remaining obligations. By simply adding the amount that you had previously been paying on the smallest debt, to the next smallest, you’ll be able to pay the next one off that much more quickly.
Pay off the highest interest rate first. By paying off the debt with the highest interest rate first, you’ll save yourself money in the long run. Since the largest cost associated with borrowing is interest, eliminating the highest rate item first will save the most money, overall. Once that debt has been eliminated you may apply the amount of that payment to the next highest interest rate liability to help pay it off faster too.
Refinance existing obligations. Another way to help reduce the cost of your debt is to refinance it. People often consider a refinance of their homes, as it is typically the largest debt any of us will have. But many lenders will do refinances on auto loans, or other types of credit as well. At the present time, interest rates are quite low, so this may be an effective way to lower your monthly payment or shorten the term of your loan.
Debt Consolidation. A debt consolidation loan may also be an effective debt management strategy. By consolidating multiple loans, the total monthly payment may be reduced. You may also be able to obtain a better interest rate on the consolidation loan, depending upon which debts are rolled into it.
Again, having debt is not necessarily a bad thing. Obviously, most of us do. And it can be used to make our lives more convenient and enjoyable. But, effectively managing it may save us a lot of money and reduce financial stress.
River Valley Credit Union, CEO