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 to avoiding a financial disaster is to control your debt before it controls you. The sooner you get your debt under control, the more secure you will feel about your financial future.
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
Know the difference between
good debt and bad debt
It’s ok to take on a realistic and reasonable amount of good debt, such as a mortgage, education or a small business loan. Bad debt, however, can snowball quickly. Credit card debt, payday loans and even car loans can be considered bad debt.
Create a budget that doesn’t
include new 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.
Add up your debt
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.
Set your debt payoff schedule
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.
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.
Note: OneAmerica® is the marketing name for the companies of OneAmerica. Products issued and underwritten by American United Life Insurance Company® (AUL), a OneAmerica company. Administrative and recordkeeping services provided by OneAmerica Retirement Services LLC, a OneAmerica company, which is not a broker/dealer or investment advisor.
Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided. For answers to specific questions, please consult a qualified attorney, tax advisor, or financial professional.
Investing involves risk, including potential loss of principal.
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.