Debt has become an unfortunate part of our economy, but it doesn’t have to be as bad as it seems. Debt comes in all shapes and sizes, so knowing the different types of debt and how to manage them can help you make the most of your situation and get out of debt quickly and painlessly. Here are four main types of debt to keep in mind while managing your money better and paying off that credit card bill once and for all.
Car Loans
You may have a car loan if you finance a vehicle through a bank or credit union. The terms of your loan will dictate your monthly payments, interest rate, and how long you have to pay off the loan. You can typically get a lower interest rate if you have a good credit score. To make sure you don’t default on your loan, try to make payments on time and more than the minimum amount due. Car loans can also set you behind financially in the long-term because car payments for a good vehicle can range anywhere from $200 - $400 per month. If you have to finance your vehicle, try and pay it off in 3 years or less.
Student Loans
Of the four types of debt, student loans are probably the most common. If you have student loans, you're not alone - over 44 million Americans have them, totaling over $1.5 trillion in debt. The good news is that there are a number of options available to help you manage your student loan debt. You can choose a repayment plan that fits your budget, and if you're struggling, you can even defer or forbear your loans. However, interest rates can be very high when you have start paying off your loans so it could be in your best interest to consolidate them by refinancing to reduce your payment. This will not only improve your cash flow but you will be less interest over the long-term.
Credit Cards
Everyone has heard of credit cards, but not everyone understands how they work. Credit cards are a type of revolving debt, which means that you can borrow money up to a certain limit and carry a balance from month to month if you need to. The key to using credit cards responsibly is to only charge what your monthly cash flow allows. Otherwise, you'll start accruing interest charges, which can add up quickly. The easier way of explaining this is to use your credit card like a debit card. This allows you to leverage your cash flow to your advantage and utilize cash back, travel rewards and other free benefits they offer. However, this takes discipline and being honest with yourself about your spending habits. If this strategy is used correctly and stewardship, you can reap the benefits.
Mortgages
A mortgage is a loan that helps you finance the purchase of a home. When you take out a mortgage, you agree to repay the loan over a set period of time, usually 15 or 30 years. The interest rate on your mortgage is determined by many factors, including the economy and the housing market. You can manage your mortgage debt by making sure you have a good credit score and by shopping around for the best interest rates. If interest rates go down at least 1% than you currently hold - look at refinancing to reduce your monthly payment and pay less interest over time. There are companies like CapCenter that offer zero closing costs when you refinance. Let me repeat that...zero closing costs.