How serious are you about your debt? Are you doing everything possible to pay off your debt?
I’ve had a few setbacks lately. Car problems along with a string of bad luck resulted in my credit card being swiped more than usual. I put a few unexpected expenses on my credit card. It really sucks because this was not money that I was planning on spending. The only positive to this is that I can bail myself out due to my emergency savings. It’s not going to be fun transferring the money over to my credit card, but it beats paying interest on debt.
All week I’ve had the idea of debt on my mind and I wanted to write about it. There’s no real structure to this post. I just wanted to throw out random thoughts on different kinds of debt and paying it off:
Preventing debt with an emergency fund.
If you’re already in debt then this might be a little too late. If you’re currently not in debt, please don’t underestimate the value of an emergency fund. Now I know that you’re probably thinking: what’s the difference between regular savings and a so-called emergency fund? Nothing technically. It’s just a basic psychological tactic used to put money in a separate savings account knowing that you can bail yourself out if you ever need to.
How serious are you about your debt? With an emergency fund you take proactive measures and you hedge against unforeseen expenses that will come along. Basically, you got money for when shit hits the fan.
Using debt as leverage.
Not all people are in debt for the same reasons. On the opposite of the debt spectrum is using debt as leverage. Some college students will use student loan money for investment purposes. Some savvy investors will take a line of credit and invest this money in the stock market or any other potential income generating asset. You know the classic saying, “it takes money to make money.” When you don’t have any money you can always borrow money to take some chances. This is of course extremely risky.
How serious are you about your debt? Chances are that you owe a lot of money, but you’re an advanced enough investor that you can handle the risk and stress that come along with owing money.
We consider bank loans for a home mortgage to be a good form of debt. An education is also often considered a positive form of debt. At the end of the day I’m hard pressed to even think that the notion of good debt even exists. What do you think?
How serious are you about your debt? With a home mortgage or any other perceived form of “good debt” we often tend to make our payments without much stress of paying it off aggressively. These loans often take a long time to pay off.
When we have to worry about paying off car loans or credit card debt, it’s often painted as bad debt. A car loan can often times be necessary because we need to get around to work, school, and every where else in life. When it comes to credit card debt, it’s usually due to the excess of crap that we purchased over time.
How serious are you about your debt? With this type of debt the goal is often to pay it off ASAP. Some will urge you to pay off the lowest balance first while others will suggest that you target the debt with the highest interest rate. The former gives you a psychological boost of knowing that you’re on the right track, while the latter makes more sense mathematically.
How do you deal with debt and unexpected expenses?