06 May Is All Debt Bad Debt?
The average U.S. household credit card debt currently stands around $15,216. That is quite a bit of money when you consider the average U.S. salary is $48,000. However, not all debt is negative, as some may actually be helping you achieve your long-term financial goals. Credit card debt is a different story, as is almost always bad debt.
It is important to prioritize the way that you are paying off debt. For example, carrying a long-term mortgage might be helping you save money for retirement, build a college fund, or even allow you to create an emergency fund. In those situations, your home mortgage loan debt is not bad debt to have. You likely also have some installment loans like student loans and car loans. While student loans paid for your education, they are unfortunately still debt and it is important to get rid of these quickly as possible.
The worst kind of debt is credit card debt. Here are a few ways that you can tackle it to help you get back on track with your finances.
- One approach you can try is ‘rapid debt elimination.’ For this approach to work, you must take every extra penny that you have and focus on putting it toward paying off your debts. This method is critical for people who are not able to save or have sufficient funds for their lifestyle. Using this will help you pay off old debt before adding good debt. While rapid debt elimination will have quick results, it is not something you can plan on doing long term. This method is known as a “sprint plan.” A sprint plan is when you recognize a 30-day time period when you are very strict with your finances (no shopping, going out to eat, making unnecessary purchases, etc.) and put all that saved money towards your debt. From there, over the next 30 days, you are much more lenient. The pattern becomes sprint, recovery, sprint, and recovery. While this approach will help you make effective debt eliminations, it is not something that you should plan on doing indefinitely.
- A second approach is the ‘snowball plan.’ With this plan it is important to sit down and create an accurate assessment of where you are financially; look at whom you owe money to, how much you owe, your current monthly payments, and your interest rates. Next you must prioritize your debt by taking you worst debt or smallest debt and making it your first priority. (Of course, you can decide if you want to pay your highest debt with the highest interest rate or choose your smallest debt that is quickly paid to gain momentum.) If you choose to start with your highest interest rate debt, your plan of action is to pay the absolute minimum for all of your other debts while working on that first debt you chose to tackle. When you finally pay off that first debt, you snowball into the next one by continuing to pay all the other minimums while working on your next highest interest rate debt. The plan here is to keep focus on one debt at a time so that you can maximize your money and efforts as much as possible. (Remember that you must keep making your other minimum payments!)
Your ideal situation is to not be wasting your money on debt and interest rates and instead be working towards your emergency funds, saving for retirement, paying off your home mortgage loan, and all of your other long-term financial goals.
Your home mortgage loan or refinancing your home mortgage loan can help you put your money toward other financial goals. If you have been considering refinancing your home, it is not too late. You might have missed the best opportunity but rates are still lower than they have been in a very long time and if you continue to wait any longer to purchase or refinance your home mortgage loan, rates may continue to rise. You can trust Fairway Independent Mortgage of the Carolinas to make your home loan as stress-free as possible. Call one of our offices today to get started or schedule an appointment to really look at your financial plans and help you make the best home loan decision or show you how the path toward ownership. Call us anytime. We have multiple locations across the Carolinas to make meeting convenient, or simply fill out our online application to get started.