How quickly that debt can rack up, between a mortgage, a car payment, credit cards, student loans, and more. According to a recent study, consumer debt in the US is at $14.2 trillion which means Americans are lugging around an average of $92,727 in personal debts. That is staggering.
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The bottomless well — student loans, credit cards, personal loans
This debt can include student loans, credit cards, personal loans, mortgages, auto loans, and more. It’s no wonder we feel like we can’t get ahead! It racks up one at a time, and suddenly you turn around and you’re drowning. The expenses of living increases faster than the raise at work, and that doesn’t include the unexpected such as a flat tire or a water break in the house.
Making more than the monthly minimum payment
Now, all of that said, there is some personal responsibility to be discussed. While some debt cannot be avoided, some of it can. Medical bills can happen unexpectedly (believe me, this isn’t hypothetical) but maybe that new dress or those snow skis can wait.
I recommend making a list of your current debt, including balance, interest rate, and monthly payment. Once you have the list, decide which to tackle first. My personal choice is always the one with the lowest balance since I can pay it off fastest and move on to the next one. You can also choose the one with the highest interest rate since paying that one off will definitely save you money in the long run. If you only pay the minimum, you will not make progress. Even if you can only afford to add an extra $10 per payment, it can make a difference.
Self-fulfilling cycle
The debt reduction process is a self-fulfilling cycle. The more debt you pay off, the more money you have to put towards other debt. If you pay off a credit card that has a $100 minimum payment a month, that $100 is now available to put towards the next credit card. This is the main reason I encourage folks to pay off the smallest balances first because you can make real progress and can quickly generate additional cash to put towards something else.
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