Managing Your Debt
According to credit.com, if you just make minimum payments on a $10,000 debt at 15% interest, it will take just under 28 years to pay off that debt and cost almost $12,000 in interest.1
Take Control of Your Debt Before It Controls You
Most people take on some level of personal debt, whether through a mortgage, student loans or credit cards. But if you’re not careful, acquiring too much personal debt can come back to haunt you.
The key is to control your debt before it controls you. The sooner you get your debt under control, the more confident you will feel about your financial future.
It’s ok to take on a realistic and reasonable amount of good debt, such as a mortgage or a student loan. Bad debt, however, can snowball quickly. Credit card debt, payday loans and even car loans can be considered bad debt.
A great way to avoid bad debt is by developing (and sticking to) a household budget. Start by tracking your expenses for a month. This will give you a better idea of where your money is going.
Take an inventory of everything you owe. Determine how much you can afford to put toward paying down your debt each month. For each debt you owe, write down the current balance due and the interest rate.
There are several methods that you can use to pay off debt. The “Momentum Method” often proves most effective. While still making minimum payments on your other debts, pay off the account with the lowest balance first, which gives you a sense of accomplishment in erasing a debt. Once you have paid off an account, roll that payment amount into paying more on the next account with the next-lowest balance.
A Word About Savings and Debt Management
Regardless of the amount of your debt, it is important to put money toward both your debt reduction and retirement savings. Putting off savings until you are debt-free can prevent you from using one of your greatest assets: time. Pay yourself first by setting up your retirement account contributions and then work to pay down that debt.
Small Increases, Big Impact
Increasing Your Contributions Regularly Can Help Build Your Retirement Account.
1. How Long Does It Take to Pay Off $10,000 of Credit Card Debt, https://www.credit.com/blog/how-long-does-it-take-to-pay-off-10000-of-credit-card-debt-113910/, April 13, 2015.
The views and opinions expressed by Peter Dunn (aka Pete the Planner) are solely his and do not necessarily reflect the views and opinions of the companies of OneAmerica. Pete the Planner’s content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice. Pete the Planner is not an affiliate of any OneAmerica company.