Paying Down Your Debt

Now that you can see what your debt is vs your income coming in (A Budget by Any Other Name), so now it’s time to figure out how you are going to deal with that debt and get it paid down…Let’s talk consumer debt.  This is debt such as credit card debt, etc.  This type of debt usually has a high interest rate, which means only a portion of your payment is being used toward the actual debt.  The rest is paying interest.

I know this next statement is going to shock you, but…if you have some form of savings account that will pay off (or pay down) your consumer debt, then use your savings to pay it down or pay it off.  Odds are your savings is paying less interest to you than you are paying interest on your consumer debt.  I don’t want you to spend all of your savings.  You want to keep a cushion in case of any emergencies.  But here’s the thing.  If you are paying out $300.00 towards your credit card debt and you can pay it off with your savings, then you can replenish that savings with that $300.00, so you have to weigh the odds and figure out if it is in your best interest to pay it off or a large portion of it.

Other ways to pay down debt are:

• Borrow against your life insurance.  You will have to pay it back but usually it is for a lot less interest rate than getting a loan or paying a credit card back.
• You can borrow against your employers retirement account.  Just know that whatever amount you borrow, you have to pay it back and if you leave your job or lose your job, you usually have to pay it back within 60 days

Again, I don’t want to wipe out your savings, but I want you to know your options because with options, you can make the best choice for you.