Five Ways to Get out of Debt from Kiplinger
Kiplinger yesterday has an article which offers five simple ways to reduce debt. What’s new in the article is that the author categorized student loan as “good debt” because the money you borrowed was used for a good endeavor: getting a higher education and a good-pay job, which eventually will help you build your personal wealth for decades to come. But it doesn’t mean you don’t need to manage your student loan wisely. It’s still a debt (USAToday says student loan balances rose 16% from 2001 to 2006 to an average of $14,379) after all. And again the author emphasized the importance of budgeting in debt reduction.
Here’s what you can do if you are in debt:
- Take stock. Find out first how much debts you own (the outstanding balance) and the cost of owning them (interest rates of all the debts). Once you have a clear picture, you can figure out which to cut first.
- Identify good debt and bad debt. Some debts, such as student loans are good debt because the money borrowed helps you build future wealth, and the asset you bought will long outlast the debt. Bad debt such as credit card debt and auto loans, however, charges a hefty premium and can only lose value over time.
- Stick it to your lenders. Stop using your credit cards so the debt won’t continue to grow. Also, ask your creditors for a lower rate if you have been making payment on time or transfer the balance to a lower rate card (0% balance transfers, though you may have to pay a fee).
- Curtail costs on student loans. Even for student loans, you can shop around for a better rate. Many lenders offer rate reductions for 24 or 36 consecutive on-time payments, or for having your payments automatically debited from your checking or savings account.
- Spend smarter. Set up a budget to get your spending under control and whatever left at the end of the month can be used toward debt reduction.
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