Managing debt is a critical life skill. Whether you’re juggling credit card balances, or a mortgage, knowing how to handle your debt can make a significant difference in your financial well-being. In today’s post, we’ll explore how to effectively manage your debts, the distinction between ‘good’ and ‘bad’ debt, and actionable tips for enhancing your credit score even while in debt.

Understand the Specifics of Your Debt

Before tackling your debt, you need a comprehensive understanding of what you’re up against. This includes knowing the interest rates for each debt, how the interest compounds (daily compounding is standard for credit cards and student loans), and the expected timeline for repayment.

To get a clear picture, create a detailed spreadsheet with columns that list all these aspects for each debt you owe. This will serve as your roadmap in the debt management journey.

Prioritize Your Debts

The way you prioritize your debts can have a long-term impact on your finances. The smaller your payments on high-interest debts, the more you end up paying in the long run.

Utilize the spreadsheet you’ve created to organize your debts by their interest rates. Start by focusing on the debt with the highest rate while not neglecting the smaller ones. This strategy will save you money in the long term.

Good Debt vs. Bad Debt

All debts are not created equal. ‘Good debt’ generally has lower interest rates and provides opportunities for future financial growth. A mortgage, for example, allows you to build equity over time. ‘Bad debt,’ on the other hand, typically has high interest rates—like those associated with credit cards—and can spiral out of control if not managed properly.

If you’re carrying ‘bad debt,’ don’t waste energy regretting past financial decisions. Instead, focus on modifying your spending habits and your relationship with money moving forward.

Rebuilding Your Credit Score

Contrary to popular belief, your credit score isn’t irreparable just because you have debt. Don’t fall into the trap of thinking, “my credit score is already low, so why bother trying to improve it?”

Commit to a debt repayment plan and stick to it. Also, consider reducing or eliminating your reliance on credit to progressively improve your credit score.

Finding the Right Balance

Juggling debt repayment, investments, and building a retirement fund can feel like a monumental task. But remember, you don’t have to do it alone.

If you’re feeling overwhelmed, we’re here to help. Call our office at (435)773-9444 to schedule a free consultation with one of our Financial Architects to discuss a customized financial plan that suits your needs.