Breaking Up with Debt
What is the Money Date? A weekly time to check in. 3 things we review and update: 1. Spending 2. Earning 3. Savings
You’ve got an extra cash or disposable income in your budget and want to pay off some of your debts off. Breaking up with debt? Where should you focus? Cut down the credit cards or student loans? Knock off the home equity line of credit or pay off the car loan off? Not all debt is created equal.
Here are a few steps to help you decide:
Understand what kind of debt you dealing with? “Bad” vs. “Good”?
If you have a student loan or home loan, that’s considered Good debt, because it will increase your financial position as well as provide an additional benefit in the form of income tax deduction.
Now, “Bad debt” includes anything that doesn’t improve your financial position. Does buying a new dress or a paying for a fancy meal at the restaurant using your credit card improves your situations if you can’t pay off at the end of the month? This is the debt you should hit hard first!
Make a list of your debts.
What are the balances? What are the terms? Monthly payments? Let’s get ready to create a payoff schedule. Are you going to create a snowball and pay it over time? Having a plan to pay off debts is important!
Is refinancing your debt the best option?
With larger loans such as mortgages and student loans, it may make sense to refinance as it takes a long time to pay off and you might be saving on interest.