Here at Prime Time Money we’ve been focusing on how the mid-point in the year is a good time to revisit your financial situation and see where you stand. To help get you started, I’ve put together a series of ideas to help you conduct your own mid-year financial check-up.
Third in the series is a review of your debts.
Got Bad Debt?
Take a moment to review your debt situation (gather up all your statements) and identify those truly bad debts still hanging around. What do I mean by “bad” debt? Isn’t all debt “bad”? Well, deciding what type of debts are “okay” by you is a personal choice. You may decide that NO debt is the ideal. Do You Have Too Much Debt?
For my purposes, “bad debt” is any unsecured debts (like credit card balances) I’m not paying off every month, OR any secured debt with an interest rate above 6% or 7%. I don’t like this kind of debt because it keeps my money from being able to work for me elsewhere. What kind of debts are you comfortable with? Tell me in the comments below…
Start a Debt Reduction Snowball
Now that you know what your debts are and which debts you’d like to do without, let’s make a plan to get rid of them. First, prioritize your debts (e.g. rank them according to amount or interest rate). Next, write up a plan to start making extra payments on the first debt in your ranking. Determine how long it will take you to pay off the first debt. Plan it so that once that first debt is paid off, you can start on the next, and so on, until all your bad debt is gone.
Temporarily Transfer Your Debt
If you’re feeling extra motivated, don’t mind a possible small ding to your credit score, and you’re financial savvy, consider applying for a credit card with a 0% interest balance transfer rate and transferring your bad debt. Don’t do this if your plan is simply to go back out and charge up another card, or if the transfer fees are above the amount you’d be paying in interest by keeping your balance on your old card. Only use this method if you’re fully committed to paying off your debts.
Bonus: Make a Plan to Celebrate Getting Rid of Your Bad Debt
Now that you have a nice plan for getting out of debt, be sure and plan on how you can treat yourself and your family for the accomplishment.