Welcome! It looks like you're new here. Be sure to subscribe to my RSS feed so you don't miss a thing! Thanks for visiting!

I stumbled across an article the other day which was written by the managing editor for Money Magazine which broke down the daunting task of starting to get your debt straightened out. With as much debt as most recent college grads have – graduates now leave school encumbered with $20,000 in student loan debt, on average, not to mention credit card debt, etc. – it is often difficult to know even where to begin when faced with the chore of handling your debt. But here is a great place to begin:

1. Get all the facts. Get intimate with your debt. Find out everything about your debts, including balances on every account, the interest rates, whether the interest is deductible and when and how those rates can change.
2. Prioritize your bills. Credit cards, car loans and personal loans, which are nondeductible; mortgages, home equity loans and some student loans, which are deductible, should be divided into piles, and then ranked from highest rate to lowest.
3. Pay high interest debts first. Start with the highest rate, typically starting with nondeductible debt, then moving onto the next.

The final caveat is the most important. While you never want to ignore your lower interest debt, it is important to pay only the minimum due each month on these, while focusing your repayment on your debt which collects more interest (and thus costs you more money). For instance, if you have consolidated federal student loans which are locked in at a 7% interest rate, even if there is $20,000 worth of them, you want to eliminate the debt on your credit card with 13% interest first. Even though there is more owned on your student loans, you’re only paying $7 per $100 owed on them each year, while you pay $13 for every $100 on that credit card.

(image by lemonjenny)

Technorati Tags: debt, bills, loans,  credit cards, student loans, college

Popularity: 14% [?]