1. Most Americans are Burdened with Credit Card Debt
While Americans paid off a big chunk of debt over the pandemic (largely thanks to those stimulus checks!), the average household in the US owes over $90,000 in debt.
Sound high? Well, it factors in school, car loan, and mortgage debt. While those 3 contribute to the bulk of the debt, many of them have low to extremely low interest rates… while most credit cards average around 16%. Since Americans as a whole owe over $800 billion (with a B!) in credit card debt, you can see how things get out of hand. Always be sure you don’t spend more than you pay back, and always shop around for the best interest rate.
2. You Should Always Pay More than the Minimum
While the lender will let you know the minimum amount to pay, you should always pay more than that – as much more than that as you can! Doing so erases some of the principal (which is the total amount owed), meaning that you’re actually making good progress on your debt. If you only pay the minimum, you’re barely covering the additional interest you’ve accrued that month – meaning it can take decades (seriously) to pay off your debt. On top of that, since you’ll mostly be paying interest, you’ll end up paying thousand and thousands extra.
So – always pay more than the minimum!
3. Not All Lenders Are Equal
It pays to vigorously research who you are borrowing from. If you are having debt trouble, local, community, and exclusive banks (like Navy Federal Credit Union) will be much more willing to work with you on your issues than the mega banks out there.
However, if you’re in good standing and looking to take on some debt, the larger banks and companies out there sometime can afford to offer better rates.
Consider your situation and your options before choosing a lender.
4. Always Be Prepared for a Pause in Income
This is advice you’ve heard a million times, but it can save your financial life: have money saved for emergencies. You never know what life may bring, and having a financial cushion to lean on when times get tough is a tried-and-true way to avoid bad debt.
You can even start with something small. Many folks begin saving with a piggy bank or a change jar. Other folks start a side hustle and save every bit of that cash for a rainy day.
Regardless of how you save, simply getting into the habit of saving will pay long term dividends.
5. Don’t Rush to Pay Down Your Mortgage
Many people pay extra on their mortgage, and unless you are able to do that and still live comfortably and manage all your other debt, we advise against it.
We discussed “bad debt” in our previous blog on debt facts, and we discussed the waterfall method – which is when you pay off your highest interest debt first.
Mortgages are generally considered good debt – they create intrinsic value (your home) and will often have interest rates considerably lower than any other debt. paying extra here doesn’t make too much financial sense – especially if you have higher interest debt elsewhere.
The exception to this is if you bought your home with a high interest rate. However, in that case, it’s a good idea to explore your refinancing options first – rates are historically low these days, and you could drastically reduce your monthly payments if you are able to refinance.
Debt Problems? We Can Help.
We hope you’ve found these 5 more facts about debt helpful. Be sure to review our previous blog on debt facts if you haven’t yet.
When it comes to bad debt… if you’re in over your head, we can help. Just get in touch by filling out our online form. We look forward to working with you!
Gilliam & Mikula, PLLC, is centrally located in Richmond, Virginia, and serves clients throughout the Commonwealth of Virginia. Our attorneys have over forty years of combined experience in various practice areas, representing individuals and businesses. We are licensed to practice in all General District Courts and Circuit Courts of the Commonwealth of Virginia including, Central, Tidewater, and Northern
The attorneys at Gilliam & Mikula are here to smoothly guide you through the “legal maze” and ensure that you achieve the most favorable outcome.
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