Deciding how much to pay on your debt is an important question that many people struggle with. Get a grasp on your debt, realize that it can be crushing in many ways, and understand that the sooner you can get rid of it, the better off you'll be.
Types of Debt
There are different types of debt, and you need to consider which debt you are paying on. Some people prefer to have no debt at all; this is not necessarily a bad thing, as debt can weigh you down. However, some financial experts say there is such a thing as good debt. Good debt is debt that helps earn you credit and reduce your taxes. For example, a car loan might be beneficial to have to help you build credit so you can buy a house. A house loan also might be considered good debt, because the interest is deductible and usually the loan has a low interest rate.
Pay What You Can
The more you pay on your debt the sooner you will be free of it, and the less you will pay overall because of compound interest. Make a budget to ensure you cover all of your monthly bills, as well as saving for irregular expenses such as vacations. After your budget is satisfied, pay as much as you can toward your debt. Pay at least the minimum you owe but strive to pay more. Some experts recommend putting more money toward one particular payment; this can be more cost-effective by paying off high-interest loans first and narrowing down the amount of individual debtors.
Alternative Opportunity
Consider what else your money could be doing other than paying down your debt. If you can invest your money and get a 10 percent return every year, you might decide that is better than paying off your 6 percent mortgage. You will, however, have to figure in taxes and realize that no investment is guaranteed. Your monthly debt requirements are virtually guaranteed as long as you owe money to someone. Most other debt is going to hurt you, and the negative credit rating you may get along with interest payments will not likely be outweighed by anything else. However, make sure you have some money set aside for an emergency situation.
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