The average American household is leveraged with $137,000 of debt. That’s a crushing number. No matter what your debt looks like, you can (and should) take steps now
to eliminate years of payments - potentially saving you thousands of dollars. Following are four of the most common kinds of debt weighing Americans down, along with debt-reduction tips for each type of debt.
A mortgage is one of the largest debts most people will take on in a lifetime. With a minimum down payment, you will pay thousands of dollars in mortgage insurance (PMI), which is basically wasted money. If you can’t put down 20% to avoid PMI, you should refinance as soon as your home value increases enough that your equity is the equivalent of 20% or more.
Pay attention to comparable home values in your neighborhood and refinance your mortgage as long as the interest rate is low. If you began with a 30-year mortgage, try to refinance to a shorter term. You will pay much less interest over the course of the loan. Choose a 20 or 15-year mortgage and spend your later years without a mortgage payment!
Another effective way to reduce mortgage debt is by making bi-weekly payments instead of monthly payments. This means you will make 13 payments per year instead of 12 and most people won’t even notice the difference.
If you are unable to pay your mortgage
or are behind on payments, address it before it gets out of control and you lose your home.
One of the worst kinds of debt is student loan debt
. It will often survive even if you declare bankruptcy. Your wages can even be garnished if you fail to pay your student loans back. Look to consolidate your loans into a low interest rate. Refinancing federal loans with a lower interest private student loan lender is another great option. Veitengruber Law can help you reduce your student loan debts
once we meet with you to discuss the specific details of your debt(s).
Debt from medical bills
is one of the "best" kinds of debt to have. You can often negotiate an interest-free payment plan with the provider. Be careful not to ignore these bills and let them go to collections, though. Having any
kind of debt in collections can ruin your credit and prevent you from making future important purchases.
If your credit card debt is out of control, you need to stop adding to the problem and put away the cards. Don’t close the accounts - this will negatively impact your credit score. Put the cards in safe place where you won't be tempted to use them, and start using a debit card or cash only.
Because the interest rates of most credit cards
are so high, repaying significant credit card debt can take years. Always make more than the minimum payment so you are impacting the balance and accruing less interest.
If your credit score is still good, transfer your high-interest card balances to low or no interest introductory period credit cards with no balance transfer fees.*
*IMPORTANT NOTE: Read the fine print
before you do this. Credit card companies are cracking down on consumers moving money from card to card to avoid paying interest. You could be hit with a very high rate at the end of the introductory period, or with retroactive interest fees if you move the debt a second time.
There are several strategies you can use to pay down your debt; read our blog post entitled "Snowball vs Avalanche: Digging Your Way Out of Debt" to find the strategy that works best for you and stick to it.
Allowing any type of debt to get out of control can have disastrous effects on your life. The stress of debt can lead to depression, anxiety, physical health problems, relationship problems and more. You may also find yourself in small claims court, civil suits, foreclosure proceedings and bankruptcy court. Your assets like televisions, computers, phones, and cars could be liquidated (sold) in order to pay your creditors.
Take steps now to gain control before your debt becomes an insurmountable mountain. Need help getting started? Call Veitengruber Law
for a free consultation.