Whether you’re dealing with student loans or credit card debt, it’s something that’s always on your mind. Dealing with debt can be overwhelming and difficult to manage but you should always make it your top priority.
Just student loan debt amounted to more than a trillion dollars in beginning of 2019. The average loan per person was almost $31,172. Consumer debt on the other hand was around four trillion dollars in the last quarter of 2018. It also takes a significant chunk of the average American’s income whereas credit card debt, mortgage payments, car loans take up to 10% of the monthly income.
No matter how challenging it might appear, dealing with debt can be made simpler if you avail the right services. Let’s learn a bit more about different kinds of debt and how you can manage it better using different strategies.
Some of the characteristics of the kind of debt collected by people in United States of America include age, income, ethnicity, family, and level of education.
Age: The most amount of debt is for people between the ages 45-54. People between the ages 36-44 comprise of 87% families which have mortgage debt as well as credit debt. Most millennial debt for people aged 35 and under is distributed between credit card debt, consumer debt, and student loans.
Education and income: Debt tends to increase with the level of education you acquire. Those with high school diplomas and college degrees have higher credit card debt. However, they also have a higher income which means the percentage of debt is lower.
For example, higher wage earners spend only 2.4% of their income on debt. Whereas those who belong to the lower income wage bracket, they spend 15% of their income on debt.
What is consumer debt?
These are personal debt created to purchase household goods and make it possible for people to elevate their living standards or buy things they need. It does not include debt which is to be repaid to the government or business related debt.
Other kinds of debt include subordinated and senior debt. The former is a lesser priority debt which is not secured and has higher interested rates and risk. Assets which are held as collateral secure the latter and therefore, it is more likely to be paid off because of its high priority.
Taking the first step to being debt-free
- It is completely possible to get out of debt with a little bit of discipline and determination. Assess your financial position and your net worth by listing your debt and assets.
- Work on your credit score and bring it up so you can avail lower interest rates. This helps you save money and the more you save, the better you will be at clearing those payments on time. Make sure there are no errors on your report. Take professional help for credit repair as this can help boost your score relatively quicker.
- You need to make a list of goals for yourself regarding your debt. This will push you to be more consistent with your efforts to be debt-free. Say you want to reduce or completely get rid of your credit card debt by at least half. Set a timeline, and clearly state that by the next year or eighteen months, you want to reduce your debt. Also aspire to get to a positive net worth.
Here are three main strategies to help you deal with debt. You can choose them based on your financial position and what you prioritize.
Start with the smallest debt
When you’re just getting started and you don’t want to overwhelm yourself, you can try this strategy first. Once you feel like you’re starting to gain momentum and have a better understanding of how things work, you can move to making multiple small payments. If you have multiple loans on different credit cards and a car loan, start with paying off any of the cards first.
Pay off heftier debts first
Or on the contrary, you can start by paying off the debt with the highest interest rate. This will make it easier to deal with debts with lower interest rate later.
Make sure that during the time you spend paying off the higher debts, you make some lifestyle changes. Cut down on your spending on various things. This requires a thorough evaluation of where you spend your income and what you consider critical spending.
Consolidate your debts
If you can’t decide which debts to pay off first, consider putting all your credit card together or all your loan debt together. This can help your credit score improve as well and has various other benefits. It makes it easier to manage one debt than multiple others in only one account. You can take out a home equity loan to pay off all the debts. But only do this if it’s available at a lower interest rate and if you can pay off the loan easily later. It can also put your home at risk.
We can help you with free credit consultation and with credit repair services in miami at Master Credit Consultant. Contact us at 1-844-620-8796.