3 Different Types of Debt You May Have & How to Deal with Them
June 12, 2019
Managing debt can be intimidating and overwhelming. However, you are not alone: millions of Americans carry different types of consumer debt. In 2018, the total American household debt hit $13.21 trillion. It is essential for you to think about paying off your debt, but it is also crucial to learn to cope and not let your debt take the best of you. We are here to help you understand, navigate, and deal with three of the most common types of debt.
1. Student Debt
Over 44 million Americans have student loan debt and collectively owe $1.5 trillion. You are not alone in the struggle to figure out how to deal with student loan debt, and here we offer some options you should consider to better manage it:
- Choose the Right Repayment: Sign up for the repayment plan that makes more sense for your financial situation and leads to manageable monthly payments. For example, if you are able to make low payments now but expect to be able to make more significant ones every few years, you might consider a graduated plan. Another option is an extended payment plan, which allows you to take your time to pay off the loans, reducing your monthly payments, but potentially increasing interest. Some people opt for income driven options, and although there are several plans within this category, they essentially base the amount you pay on your actual income.
- Consolidation: If you have different student loans, from either different or the same lender, you should consider consolidation. This option enables you to combine your existing loans into a new loan and can lead to overall lower payments and a fixed interest rate, making it easier to keep track of your payments and progress. Another advantage of consolidation is the potential for an extended payment term, which would require a lower minimum payment per month, but could also lead to a higher spend on interests.
- Spending plan: Being in debt does not mean you must deprive yourself from living your live to the fullest and indulging in things you enjoy. While it can take you years to pay off your student debts, you can still enjoy the present as long as you spend responsibly. Are you a travel enthusiast? Learn more about traveling on a budget! There are different resources you can use to create and stick to a budget without altering your lifestyle in an extreme way.
2. Credit Card Debt
Credit card debt is one of the most common types of debt – the average American household owes over $15,000 in credit card debt.
- Pay off High APR first: By paying off the debt with the highest annual percentage rate, you can cut down your spending on interest and additional fees. The order in which you pay off credit card debt should focus on getting those associated with high APR out of the way as soon as possible.
- Stop Spending: this might seem like a straightforward option, but as people pay for their credit cards, they can become more confident using them again. Do not fall into this trap. If you must use it, it should only be for charges that you are confident you can pay off within a few months. You must also make sure not to make charges on the credit cards associated with a high APR.
- Consolidate: if you have multiple credit card loans you must pay, you should consider combining them into one. However, while this can help organize your payments and maybe obtain a lower interest rate or an extension of your loan term, it is not the best option for people with excessive debt totaling a large portion of their income.
3. Medical Bill Debt
Whether for routine doctor appointments or emergency care, medical bills not covered by insurance can pose a significant problem for many Americans, but there are healthcare-specific options you might want to consider:
- Work out a Payment Plan: You can work out a payment play for your bills after a specific procedure. A plan can help break up your bill into multiple payments until the total is covered. However, always remember to ask if this type of billing comes with additional charges or fees.
- Medical Cards: If your healthcare provider does not accept payment plans, you can request a medical card, which is a credit card you apply for at medial offices or before your visit, designed to pay for medical expenses. It is important to keep in mind that medical cards do not cover every type of medical expense, so make sure it is the right option for you.
- Personal Loan: Taking out a personal loan is another viable option that comes with benefits such as a fixed loan term so you can be prepared for upcoming payments. It is essential to do your research and compare what different lenders are offering to find the lowest fees and the right repayment term that works for you. Keep in mind that you might need to have a good credit score to obtain the best interest rates when taking out a personal loan.
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