Balancing Debt and Building Wealth
Whether it’s student loans, credit cards, or mortgages, understanding how to manage your debt can significantly impact your financial well-being.
Today, let’s dive into the ins and outs of managing debt, the difference between ‘good’ and ‘bad’ debt, and tips to improve your credit score while in debt.
Understanding Your Debt: To begin your journey, you need to understand the specifics of your debt: what interest rates you’re dealing with, how your debt compounds (daily compounding is common for credit cards and student loans), and the timeline for repayment.
Practical tip: Create a spreadsheet with columns listing all the details.
Prioritizing Your Debt: Remember that the smaller your payments on high-interest debts, the more it will cost you in the long run.
Practical tip: Use the spreadsheet you made to sort out your debts by interest rate and consider focusing on the highest one first. Don’t ignore the smaller ones!
Good Debt vs. Bad Debt: ‘Good debt’ usually has lower interest rates and offers the potential for future financial gain, like a mortgage, which allows you to build equity over time. ‘Bad debt’ often carries high interest rates (think credit cards) and can quickly snowball if not managed effectively.
Practical tip: You can’t change the past, so there’s no point in beating yourself up if you have ‘bad debt’. All you can do is change your habits and relationship with money in the future.
What About Your Credit Score?: Your credit score isn’t doomed just because you’re in debt, so don’t fall into the “it’s already terrible, so why bother trying to fix it” trap. You can rebuild, even if you start with a bad number.
Practical tip: Stay the course. Create and maintain your debt repayment plan and reduce/eliminate your credit usage to improve your credit score.
Balancing debt repayment and investments while building up your retirement nest egg can feel overwhelming, so remember that you don’t have to wing it or do it all yourself.
>>Book a 15 minute consultation with my office by using my online calendar<< or calling 330 836 7800 EXT. 1, and let’s discuss a plan that works for you.
