September 19, 2018

One-Minute Guide To Debt-Reduction

Learn the differences between good debt and bad debt.

Learn the differences between good debt and bad debt.

Sounds like a dream. No more debt. No sleepless nights trying to figure out how to scale the mountain of credit card debt. No painful personal contacts with collectors. Financial freedom!

The advice takes just a minute. Here we go!

Resolve to spend less than you make. No other financial wisdom has ever been better than that. Make it a habit. Embed in your mind the truism that you can never get out of debt by going into more debt.

Good Debt vs Bad Debt

Learn to distinguish between bad debt and OK debt. Don’t settle for any debt that requires more than 10 percent interest, and watch for tax advantages. Home mortgages and college debt that increase your overall worth over time are among OK debts. Auto loans are marginal, since they don’t appreciate in value. Most everything else is bad debt, such as credit cards or high interest “quick cash” loans. Avoid them like the plague.

When choosing credit cards, look for the lowest annual interest rate. Use cards for emergencies only. Get rid of cards that are not essential and simply pose a temptation to buy what you don’t really need.

Line up your bad debt accounts in a row. Add up the minimum payments and pledge to pay the minimum on each, plus whatever you can must. Choose the account with the highest interest and work on it first, and so on down the line. Resist the temptation to add to any of these accounts.

Request that the issuing institution lower the interest on your cards. Tell them you are aware that there are cards available at lower rates, but that you want to stay a loyal customer. The response may make you uncomfortable, but stick to your guns. The institutions depend on their customers to make their profit, remember? If you have any bill on which interest tops 14 percent, try to get it down to at least 11 percent.

Be aggressive in paying down debt, but don’t put yourself in a bind with other obligations.

Look for ideas (and sympathy) through discussion boards such as consumer credit/credit cards, provided by The Motley Fool. The company, through its credit center, also offers workable ways to get out of debt.

Past Idocy

When your bad debt can be filed under “past idiocy,” make good use of the money you have saved by saving it.

Commenting on Motley Fools good advice, a woman said that she and her husband had almost maxed our their 401k and planned to use tax income and savings over the next year to pay off debt. Then life happened, with two hospital admissions, operations, hail storm damage and co-pays. Then the husband was laid off. “We spent every penny paying on debt on one credit card and a car. Then the credit card issuer, pursuant to the state laws where they lived, raised their maximum interest to 31 percent. Help! “We did not hesitate. We took our money out of our IRA and paid off every penny we owed. You wouldn’t believe how much free money we now have. We still have insurances, utilities, groceries and gas, but we have enough money that we don’t have to use the credit card. We kept one card, which we pay off monthly. (Our experience shows you should) pay off the credit card first, if you can.”

That’s good advice. And if it took more than a minute, you can count it time well spent.

About Twila Van Leer

Journalist/writer for more than 50 years. Pulitzer Prize nominee, 1983 for coverage of the first permanent artificial heart. More than 50 national, regional, local awards for news writing. Main writer for a memorial book for Deseret News' 150 th anniversary and for a book recounting the 1997 re-enactment of the pioneer trek from Omaha to Salt Lake City. Co-writer and editor of "True Valor," a book on the history of the artificial heart. Author of the book, Life Is Just A Bowl Of Kumquats, a wonderful story of a house wife and her trials with raising a large family.