Take 8 Easy Steps to Manage Your Debt
Learn how to optimize your good debts and eliminate or minimize the bad ones. By making your debts work for you and not against you, you'll take greater control of your finances and your life. Take your first step now!
Video transcript
Good debt and bad debt.
Debt is one of those things that can be hard to live with and hard to live without. But not all debt is created equal. Good debt will grow in value, generate long term income, generally has an interest rate below 6% and is eligible to be used as a tax deduction. Bad debt is used to purchase things that quickly lose their value, usually has an interest rate above 6% and is not eligible to be used as a tax deduction.
Improving the mix of good debt to bad debt in your life just takes a little know how. Here are some steps that can help keep your finances in good shape.
- Step One. Know what you owe. Review loans and credit cards to determine your current outstanding balance and rate of interest charged.
- Step Two. Consider using a portion of your savings to retire debt. This makes sense if the interest being charged is higher than the amount earned on savings.
- Step Three. Retire the debt with the highest rates first. After you retire a balance, continue applying your funds to the next highest debt.
- Step Four. Seek alternatives to high interest debt. Transferring high interest balances to low interest credit cards will reduce monthly payments, allowing more money for debt repayment.
- Step Five. Look for better repayment options for federal student loans, switch programs as your earnings level changes.
- Step Six. Review your home loan. Refinancing might reduce monthly payments, freeing up money for other debt repayment.
- Step Seven. Pursue a cash out refinance. It helps regain control over monthly expenses faster. Avoid picking up more monthly expenses.
- Step Eight. Keep credit accounts open even if you don't use them. Closing paid off accounts reduces available credit and drives credit scores down.
Debt can be useful for building wealth. For example, net worth. A homeowner's net worth is 44 times greater than that of a renter, meaning homeowners save more money over time and are able to build more retirement assets than renters. Don’t be afraid of debt understanding and having a healthy balance of good debt and bad debt is what it's all about. Take the right steps for you and start investing in your future. Today New American Funding.
