How to Handle Debt

At some point in your life, you will probably incur debt. Depending on how much debt you have, you may want to take a good long hard look at how you are spending your money, and how your financial picture looks. First you need to know that there is good debt as well as bad debt. Good debt is anything that helps you – such as going to college or buying a home. The education you get from the debt will enable you to get a better job, and hence more money. The same with a home, the money you will get from selling the home more than pays off the initial debt. Bad debt is anything that gets you in over your head, with no benefits. Credit cards are the perfect example. People rack them up, then cannot pay them off and end up paying more than what they initially bought each item for.

You need to look at how you spend your money, detailing each and every item. Gas, eating out, coffee shop visits, they all add up. Once you see where your money is going, it will be much easier to stop, or at least slow down, the flow.  Then look at your debt. If you have one credit card charging you 32% and one charging you 4%, obviously you are going to want to pay off the one with the higher interest rate before you work on the other one. Make more than the minimum monthly payments so that eventually there is nothing to pay off at all.

Don’t pay off things like your mortgage either, until you have paid off credit cards. The mortgage is again, one of those positive debts, whereas the others aren’t.  Then, once you have a handle on your money, do not relax. Keep paying full attention to what you are saving for a rainy day, as well as what you are spending ■