3 Types of Debt to Manage Responsibly

Tuesday, January 24, 2012, 2:00 AM | Leave Comment

First off, you don’t have to make new year resolution to reduce and eventually eliminate debt. If you did, that’s fine. You just have to stick with it. For many folks, following their new year resolution can be the hardest thing to do. Maybe they follow it for one month or two, but sooner or later they quit and that can turn out to be the easiest thing to do.

In this post, I want to talk about three types of debt which should be at the top of the list of debts that can be minimized to a manageable task. To pay off all three debts or bring them down to a more manageable level, you have to be organized and consistent all the way through.

  1. Student Loan

    Many surveys indicate that average student loan has exceeded the already exuberantly high credit card debt. It’s a shame that getting good education has gotten to be so expensive during recent years. The average debt per student is $25,000. To make it easier to pay off this type of loan, student loan consolidation may be a smart way to manage your debt. It may also be a better way to simplify your finances in general.

    After you have consolidated your student loans, you might want to take advantage of the new option made available in the fall of 2011 from President Obama which effectively extends loan length in exchange for manageable monthly payments.

    If you are still in school or have a dependent in school, you can claim the interest when you file your taxes. The money you save can be put toward paying off the loan. You can also use it towards next semester’s tuition. IRS has explained it on its page titled Student Loan Interest Deduction.

  2. Credit Card Debt

    As I have stated before in these pages, you can negotiate interest rates and monthly payments with credit card companies. You have to be very diplomatic when you hold conversation with them. If they lower the interest rate, the money you save every month can be put to work to reduce the loan further by paying them the same amount as before.

  3. Mortgage Loan

    There are certain specific steps you can take to reduce the mortgage debt. Refinancing with a lower interest rate is one way but you have to be very careful about points if any. Another way is to make one extra payment for the year with the money you save with lower interest rate or make biweekly payments (2 extra payments per year).

    When you file your tax return, obviously you already have paid interest on your mortgage the previous year. Generally, the interest on mortgage is tax deductible. When you itemize and deduct the interest, government pays you back some amount that you already have paid. The payback depends on what tax rate you finally fall into after other adjustments. You can make an extra payment out of that money in reducing your mortgage debt.

In a Nutshell
You can reduce any of the three debt obligations once you put your mind to it. All are strategic steps you can individually take to start minimizing effect of the sharp sting of debt.

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