“Running into debt isn't so bad. It's running into creditors that hurts.”
Current Average Credit Card Debt in the US - Experian
FACT: The current average credit card debt in the US is $11,950 and the average APR is 18.9%. When this adds to the auto loans, student loans, and mortgage loans, it gets even more intimidating. Debt is not always bad, as they often arise from necessity. It is efficient debt management that will keep things balanced at the end.
There are some rules to follow in order to manage your personal debt efficiently.
Track your debts
Whenever you forget about one of them and do not pay on time, the others have a reason to raise their interest rates on you because their loans to you have become riskier! The best way is to create spreadsheet or simply use a tool such as Microsoft Money or Quickens to keep track of your debt. Make sure you remember the payment due dates as well.
Track your debts' rates
The interest rates on some debts can fluctuate as the prime rate changes. Some credit accounts have promotional rates for a certain time frame. After that they change their rate from 0% to a whooping 22.9%. If you have an account with a fixed low interest rate, you should contact them about increasing your credit line so that you can move the high interest debts over to that account.
Highest interest rate first
Your debts will accumulate interest everyday. You want to make certain that you are shaving off the debt on the high interest accounts first. Else it is like trying to finish vacuuming before seeking shelter in the event of an earthquake or tornado.
Debt Consolidation options
The first one is to get a debt consolidation loan quote from a financial institution. This differs from transferring your debt to another debt account because it often requires you to open a new line of credit for the sole purpose of consolidating your debts. Many banks and loan agencies will want to work with you on this. It is essential that you don’t take the first offer that they give you. Shop around and get the lowest rate (and also factor in any fee that might arise). Another option is to take a Home Equity Line of Credit – HELOC. A HELOC can be very handy in this case because the interest rates are often lower and your interest payments count toward as mortgage payment, which is tax deductible. The difficult part is, of course, that you must own a home already.
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