Financial Solution – Reduce Debt – Alliance Times-Herald

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What are the most common financial resolutions? Save more money, pay down debt and spend less. These are all important goals to help everyone achieve financial security. This week we’re looking at paying off debt.

Most people have trouble managing their finances at some point in their lives, and this is especially true for those living in poverty and with limited resources.

We use debt or credit to pay for some things. We mortgage our homes, take out loans for vehicles, or use credit cards to buy things. Debt isn’t bad unless we let it get out of hand.

Credit is a person’s ability to obtain goods or services before payment based on confidence that payment will be made in the future. Debt is something, typically money, that is owed to others.

Last week, NerdWallet released the results of their 2021 American Household Credit Card Debt Study. They found that credit card debt has decreased, but overall debt has increased over the past 12 months. The cost of living is rising faster than household incomes. More than a third of Americans (35%) say their household’s financial situation has gotten worse in the past 12 months. Of households earning less than $50,000 a year, 47% say their situation is worse than a year ago.

The total debt of an average US household is now $155,622. That debt can include mortgages, home equity lines of credit, auto loans, credit cards, student loans, and other household debt, according to the Federal Reserve Bank of New York.

Being in debt often causes financial difficulties for families. You will have to pay interest and possibly additional fees. If you default or default on your payments, these interest rates will increase and more fees will be added. They also hurt your credit score and have to pay more to get credit in the future.

The debt that needs to be controlled is our credit card debt. An unpaid balance on a credit card can carry an interest rate of between 18% and 39%, rates that are much higher than you would pay for a loan at the bank. Americans who have credit card debt (which is about half of those who have cards) owe a total of $6,006! (This is a 14% decrease from last year.)

How can you settle your debts? Perhaps you could take out a loan and pay it all off and then make monthly payments on that loan, which charges a lower interest rate. If your credit is good enough, you can sign up for a balance transfer card that gives you an interest-free period. You shift all of your debt off your other cards and then work to pay off the new card. Don’t wait for the interest-free period to expire!

If you choose to work with the credit you currently have, you have two options for paying off that debt: high-interest loans or cards first, or small debt first.

Make a list of all your loans. Contain

◦ Who or where you owe money

◦ Type of loan (mortgage, car, student, credit card, etc.)

◦ Amount Owed

◦ Interest rate paid

◦ Monthly minimum payment

Sort them from high interest to least interest.

If you choose to pay off the highest-interest debt first, make the minimum monthly payments on the lower-interest loans, like your mortgage or car loan. Use any extra money you have to pay off the loan with the highest interest. This will likely be a credit card or payday loan. When it is paid out, you should close this account. Then apply the amount you paid on it to the next higher interest debt until it is paid off.

Another strategy that many people use is called the snowball method. Pay more for the card or debt with the lowest balance and the minimum for everyone else. Close this account. Then make larger payments on the card with the next lowest balance until you’re out of debt.

Remember, these strategies only work if you stop using those credit cards! Or at least only ask for small amounts that can be paid in full every month.

Let’s say you have a $2,000 credit card balance and a minimum monthly payment of $30. If you only pay the minimum, it would cost you more than $4,400 in interest and it would take you about 18 years to pay it off. By doubling the payment to $60, it would take four years to recoup. You would save about 14 years and more than $3,600 in interest.

It’s time to create a SMART goal! A SMART goal is specific, measurable, attainable, relevant and time-based. Remember to prioritize, focus on one goal, and then break it down into smaller, more manageable chunks. Maybe you can use a credit card to pay another $15 a month until your balance goes to zero. It is worth it!

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