At best, debt consumes money you could be putting away into investments to work for you by growing through compound interest. At worst, it can be scary and stressful, leaving you afraid to open the bills each month and worried that one emergency could seriously upend your life. These are all good reasons to try your best to pay down your debt even if it is not very high. Financial experts suggest different plans and approaches to becoming debt-free, but the best plan is the one you can stick to. Here are some things you should consider.
How Much and What Kind
Your approach will differ if you owe $1000 versus $10,000 or $50,000. The nature of what you owe differs as well. For example, credit card debt is very different from student loans or a home mortgage. Borrowing on your credit card is something you should avoid and should pay down as quickly as possible. On the other hand, you can aim to pay off your student loans or your mortgage early because you can then use that money for other things, but it is not necessarily financially irresponsible to incur and carry this debt. If you have medical bills, you might be able to negotiate with the provider for a reduced payment as well as a payment plan. If any of your debts have gone to collection agencies, you might be in a more serious position, and you may want to talk to a credit counselor or another professional. You’ll need to do your research to find a nonprofit credit counselor who is reputable.
What Motivates You
If you have several different debts to pay off, will you be more motivated by getting rid of some of them quickly, even if they are the smallest ones? Conventional wisdom says to start paying down the debt with the highest interest rate first. However, if you have several small bills that you could apply most of your funds towards and pay off first, you might find this more of a motivation even if you end up paying more in interest in the long run. You should also think about what rewards you would most enjoy and when you should treat yourself.
Your Financial Knowledge
How much do you know about finances and debt? Knowing more means you will be aware of more options. For example, you might not have considered refinancing multiple student loans with a private lender. If you have good credit, you may be able to get a lower interest rate and pay less monthly. If you are lacking in personal finance know-how, a professional might be able to help, but it can also be difficult to evaluate how good a professional is without at least some knowledge. Before tackling your debt, you may want to spend a few weeks or months familiarizing yourself with basic concepts and different approaches. You should also know your rights when dealing with creditors. For example, you can request that they only communicate with you by mail if you don’t want to get phone calls.