Many people think of “DEBT” as a negative four-letter word, but the reality is that almost everyone lives with some form of debt, whether it’s a mortgage, a car loan, or a credit card balance. Fidelity estimates that about 77% of American households carry some form of debt. What’s important is how you deal with it.
Generally speaking, there are two kinds of debt: secured debt and unsecured debt. Secured debt is backed by a physical asset such as a car or house. For example, if you fail to make a car payment, the lender can repossess your car. On the other hand, unsecured debt isn’t tied to a physical asset, so unsecured debt typically carries a high interest rate to offset risk. Credit card debt is a good example of unsecured debt. Regardless of what kind of debt you carry, it’s important to know the details of that debt, such as the interest rate, payment schedule, and terms. Knowing this information can help you prioritize which debts to pay first.
You know that paying off debt is the right thing to do, but it also sounds easier said than done. Debt can feel like a mountain too high to climb if you don’t have a plan. Fidelity suggests approaching debt by tackling these steps:
- Gather all of your debt information: Assess what you owe. List all of the debt you carry, including the type of debt it is, the amount owed, and the interest rate on each debt. Take note of debt that carries an interest rate of 6% or higher.
- Make your minimum payments each month. You can even set this up as automatic payments to ensure that you do not miss a payment.
- Avoid creating additional debt. Avoid using a credit card or taking out additional loans. Try to pay in cash or only use a credit card that you can pay off each month.
- Create or review your budget. Try to find places where you can cut back on spending or opportunities to generate more income. If possible, try to allocate a few more dollars each month toward the principal on your debt in order to get that debt down.
Create a plan to pay off high-interest debt.
Reach out to a financial professional if you are feeling stuck. Fidelity advisors can direct you to resources that will help you create a manageable plan. Fidelity advisors are available Monday through Friday, 8:00 am–midnight EST by calling 866-84-UNION. You can also visit any brick-and-mortar Fidelity branch office all across the country. Visit https://nb.fidelity.com