Recipes For Chipping Away At Various Types Of Debt

Everyone with debt would like to eliminate it, but it’s not always clear where or how to get started. There are many types of debt, and each is suited to a different payoff strategy.

Credit Karma Blog suggests these ways to start wearing away your various debt mounds:

* Credit card. First cut off your spending by trimming your budget to match your income, then channel any savings toward your balance. Because of its typically high interest, it’s usually best to get rid of your credit card debt first.

* Car loan. If your payment is overwhelming, consider selling the vehicle and downgrading to a cheap used car. If you’re clear of high-interest credit card debt, you can shorten your loan term and the overall interest you’ll pay by making larger monthly payments and specifying you’re paying down the principal.

* Student loans. If your loans are subsidized and your rate and balance are relatively low, you should make paying off the balance your lowest priority. If you’ve got enough money saved up to pay it off in a lump some, consider making higher monthly payments instead in order to keep some extra money handy in case you face a crisis.

Spring Cleaning Strategies for Your Debt [Credit Karma Blog]

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  1. MitchEvious says:

    Shouldn’t that be “in a lump sum” ?

  2. Cat says:

    * Student loans can’t be discharged in bankruptcy, and they can legally do things to you that would make zombie debt collectors blush. Therefore you should consider paying them off ASAP if you may be facing an income crises in the future and you’ve already exhausted your forbearance options.

    • pop top says:

      I thought only unsubsidized student loans couldn’t be discharged. What do you recommend if you have a mix of subsidized and unsubsidized? Should one be paid off before the other? Should you pay a higher monthly payment on one than the other, or does it matter?

      • TuxthePenguin says:

        All student loan is basically impossible to get rid off. Doesn’t matter if subsidized or unsubsidized. That’s why they’ll lend to anyone breathing no matter their major and credit risk. There is no default risk and even if you don’t pay, interest is still accruing. They’ll eventually get their money.

        • kosmo @ The Soap Boxers says:

          According to a college prof of mine, back in the days when students loans could be discharged in bankrupty, lots of people would visit the bankruptcy attorney the Monday after graduation, get the student loans discharged, and start “real life” with a clean slate.

          • EarlNowak says:

            Those rumors have been circulating for years. Like most urban legends and myths, you’ve been lied to. Statistics don’t bear them out.

            The student loan bankruptcy discharge rate before the law changed never exceeded 1%, a number that “compares favorably with the consumer finance industry.”

            http://archive.gao.gov/f1102a/101903.pdf

          • little stripes says:

            You and your prof are pretty gullible people. It might also help to do some research before you make such ignorant claims. As someone mentioned, that is an urban myth. You should never trust “second-hand” information, even if it’s from someone who seems to know what he’s talking about.

          • mindaika says:

            Not even remotely true, and even attempting something like that would get you charged with fraud. However, falsities like that are what got the “Bankruptcy Abuse” amendment passed in the first place though.

        • Cor Aquilonis says:

          Au contraire, I’m on track to pay mine off in March – February if I get lucky. You can pay your student loan off early if you have an average/reasonable balance, an average/reasonable income, and a hellacious capacity to endure a reduced lifestyle. It’s just really hard to do, and most people don’t have all three requirements.

      • sponica says:

        the govt subsidized/unsubsidized loans typically have kinder repayment terms…and can be forgiven if you’re in certain fields.

        private lenders basically squeeze every last penny out of you…when I called to renew my forbearance they almost didn’t want to process the application because I only had 18 months left of forbearance. their recommendation was the account be sent to collections if I needed an easier repayment plan.

        once I start working again, I’m focusing on the private loans as the govt loan payments are manageable

    • Coelacanth says:

      I suppose that all depends on how one evaluates the risk of needing to declare bankruptcy. Granted, some circumstances are difficult to forsee, but if the risk is on the low side (i.e. multi-income households and/or access to helpful relatives in case a financial crisis were to occur) it’s still financially superior to pay off high-interest rate debt first.

      I almost feel that if one declares bankruptcy, they have bigger things to worry about than paying their student loan debt.

  3. alliebeth says:

    I dunno, I guess this is good advice. I only have student loans, and they will be sizable after I finish professional school. I plan to get my federal loans consolidated, and then pay off my one private loan as FAST as humanly possible. In fact, I plan on living like a poor college student for the first few years out of school so that I can pay down my debt as fast as possible. As far as I’m concerned, debt has only one purpose: to be paid off. There is no such thing as a “good debt”.

    • pop top says:

      How are you going about consolidating your federal loans?

    • Necoras says:

      Debt is good debt if the cost of borrowing the money is less (hopefully significantly less) than the value of having the money now, rather than after you’ve had time to save for it. This has historically been the case with student debt (although that’s changed some in recent years with useless degrees and for profit universities) and mortgages (again, recent events may not have borne this out). It’s rarely the case with a new car, or any credit card debt.

      The real issue is that people don’t understand the difference. Money is a way of representing value. There’s a value to having something now, rather than later. You have to factor in the cost of borrowing money and see if the value of your stuff, whether a car, house, or education, out weighs the value of the time you’d spend without those things. If any of these things can increase the value of your time (say driving rather than taking a bus), then it might be a good idea to borrow to buy it. That isn’t to say that there aren’t cheaper ways to accomplish the same thing (buy a beater for $2k rather than a brand new car for $20k) but in the end it all comes down to value.

    • kenj0418 says:

      Depending on the interest rates on your loans (and whether or not all the rates are very close to one another), you may not want to consolidate.

      If you are planning on paying your loans off early, then you’ll want to be paying extra, and getting rid of, the higher interest ones first. If you consolidate, then you end up with one rate which is a weighted average of all your loans. There is no way to target the (relatively) high interest loan, because you now only have the one, medium-rate loan. If there is a wide range between rates on your loans, then not consolidating them could end up saving you money.