I've held hundreds of seminars. And, without fail, the most common questions I get involve debt. So, let's start with the big picture.
Debt sucks. It piles up over time. It’s debilitating. It’s frustrating. It’s not your fault. Well, maybe a little your fault. It doesn’t matter. It’s in the past. But, remember this feeling. You don’t want this feeling again.
To payoff debt, you need an emergency fund. Huh? Yep, a small emergency fund will protect you from adding to your debt. You need to stop the bleeding. Then, it’s time to pay off the debt. But which ones should you pay off? What’s the right order? Is it okay to just make payments on any of your debt?
Here's the SmartPath Debt Payoff Plan:
BAD DEBT – Pay This Off!
- Payday Loans, Title Loans and Other Toxic Debt
- Paying Off Credit Cards
- Tackling Private Student Loans
- Private Student Loans
- Medical Debt
- Tax Debt
- 401(k) and Retirement Account Loans
NOT SO BAD DEBT – It's Okay to Make Payments
- Federal Student Loans
- Auto Loans
- Mortgage and Home Equity
Pay off bad debt while making payments on the not-so-bad debt. This is a balanced approach. This approach allows you to enjoy today and save for your future. I know some financial advisors suggest you pay off all your debt. I don’t. I don’t think it’s realistic. It leads to burnout. Instead, in the SmartPath Debt Payoff Plan, pay off the debt that’s drowning you while simply making payments on debt you can manage.
This is the big picture.
What else? Do you have a Debt payoff plan? How does it compare to this approach?
Adapt the Debt Payoff Plan to your situation. If you have high balances or high interest rates (>7%) on your home, car, or federal student loans, move them to bad debt and pay them off.