Not all debt is terrible. Yet, when it comes to good debt vs. bad debt, the bad debt is the kind that’s crippling U.S. consumers with an average of $8,398 per household.
Good debt is anything that’s a clear investment in your future, and something you know you’ll be able to pay back or profit from. Some examples of good debt include student loans and real estate investments.
If you’re suffering from bad debt, it’s usually from credit cards or risky loans. Using credit or loans to pay for non-essential expenses adds up quickly and can end up limiting your freedom.
Find out how you can regain control and pay off bad debt for good.
Set an Allowance for Bad Debts
Paying off debt requires discipline and responsibility. Take a look at your usual monthly budget and see how you can readjust your spending to set an allowance for bad debts.
Your bad debt expense might come from money you save through eating out less or restricting your budget for things like movies and entertainment.
Your new budget may not be ideal, but sticking with it is the quickest way to pay off your debt. If it feels difficult, just remember that all the money you’re putting toward debt payments can be used for anything you want after you’re finished paying it off.
Debt Consolidation for Bad Credit
One way to pay off your debt quickly is to consolidate it. Debt consolidation makes it easier to manage your payments, and it can also help raise your credit.
Interest payments are the main factor that keeps people from being able to pay off debt quickly. Through consolidation, you can transfer your balance from high-interest credit cards to a single, low-interest account.
Before transferring your balance, make sure it’s a 0% interest transfer. This means you won’t incur additional charges by making the transfer.
Take Out a Personal Loan
Taking out a personal loan could be another way to consolidate your debt that doesn’t involve balance transfers. Through a low-interest loan, you can pay off your credit cards and focus on paying off the loan in installments.
A great example in this article from Bonsai Finance shows how some companies can approve you for personal loans even if you have bad credit.
Once you receive a personal loan, it will help motivate you toward paying off debt since it makes it more organized and easy to manage.
Set Yourself Free From Bad Debt
Bad debt affects many aspects of life. If you’re in debt with bad credit, it’ll affect your chances of purchasing a home or car and planning for the future. Bad debt may also limit how you’re spending your money, and it restricts your financial freedom.
Though paying off your debt feels overwhelming at first, getting organized is the first step. Through debt consolidation and strict budgeting, you can work your way toward a complete payoff.