Tackle 'bad debt' first to get out of a financial hole

Tackle 'bad debt' first to get out of a financial hole
High-balance credit cards wreak havoc on budgets. (Source: Pixabay)

(WWBT) - Millions of Americans are drowning in debt, but it doesn't have to be that way.

Not all debt is created equal. For instance, paying off a mortgage or student loan ahead of scheduled may not make sense.

To attack your debt in the most effective way, write down everything you owe and concentrate on the "bad debt" first. That means specifically credit cards and auto loans.

One approach is to pay as much money as you can toward the debt with the lowest balance and making minimum payments on everything else. Once the lowest balance is paid off, go after the new lowest balance.

Paying off even small debt can be motivating.

"There's also a psychological piece to it where you get a sense of accomplishment and sense of purpose that you're doing the right thing," Michael Joyce, president of Agili, said. "You get forward momentum that you can keep plugging away at that debt."

If that approach doesn't work for you, go after the credit card with the highest interest rate and pay it down first.

No matter what method you use, cutting out regular spending from your budget to put more money toward paying off debt will get you out of the hole faster.

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