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Tuesday, April 18, 2017

Greetings Thrifty Friends,

There are two basic ways to tackle debt. This assumes that the debt is spread out over several different sources.

As of 2016, the average American credit card debt was between somewhere around $5,000 and $16,000, depending on the source and how it was measured (household vs. individual, age range and income distribution). And this included several different cards.

Then there is debt other than credit cards, like auto loans and student loans.

So how do you approach a pile of debt composed of several different sources and types?

Keep pinchin' those pennies,

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Pay off the lowest dollar amount first.

When faced with debt from several different sources it makes sense to pay off the smallest loan first for different reasons. First, knocking out that small bill will allow you to devote more resources to your larger debt. Without that $1,000 credit card balance hanging over your head you can devote an extra $100 every month to your car payment. Second, there is a distinct psychological advantage to finally getting some bills eliminated. A $50,000 student loan will seem so much more insurmountable if you are being nagged by a small but recurring credit card or car loan payment every month. Knocking out those smaller bills will give you a sense of accomplishment and motivate you to tackle your bigger obligations.

Pay off the highest interest rate first.

It doesn't make sense to pump the majority of your spare cash into a car loan that you're paying 6 percent on when you're making minimum payments on a credit card charging 14 percent. Mathematically it makes more sense to concentrate on the highest interest rate first. This is especially true if you have different debt in similar amounts. If you have $10,000 in credit card debt at 14 percent and $10,000 on a car loan at 6 percent, it would be foolish to overpay the car loan by $100 a month when that money could be going to your credit card.


You have to look at your own debt situation and decide the best strategy for yourself. Because these are not the only two options for tackling debt. For example; if you have two or more credit cards that are charged to the max, you could get a personal loan to consolidate all the charges into one monthly payment. If you are paying 14 or 15 percent on two or three credit cards, 8 or 9 percent on one personal loan is a great idea.

Never stop making payments.

No matter what strategy you decide on, never stop paying on any one debt. Stopping payment for even a couple months can lead to a serious ding on your credit history.

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