This month, we’re bringing you bite-sized servings of financial literacy. Each week, we’ll introduce you to a core concept and map out a fun and easy daily action item. This is our third week in the series.
Debt. Most of us have it in some form — credit cards, student loans, a car loan, a mortgage, an outstanding medical bill. Having debt is not a moral failing, but we can get so wrapped up in our feelings about having debt and how we got it that we get in our own way.
That’s not to say we don’t need to address the underlying reason for having debt. Getting to the root of why we have debt is an important step in the process of getting out of it. If we aren’t making enough money to cover our expenses or we are doing some emotional spending, that’s key information we can act on.
Debt is money that you owe to another person or company. Yes, that’s it — an extremely simple definition for something that can cause a lot of stress, anxiety, and shame in our lives.
We get into debt when we’re trying to bridge a gap between the money we have and what we want or need to pay for. This is equally true when we go on a vacation we haven’t saved for as it is when we take out a mortgage to buy a home.
There is no such thing as “good” debt and “bad” debt — but there is a difference between high-interest and low-interest debt. With high-interest debt, borrowing money comes at a steep price, especially if you are paying it off for years. If you have low-interest debt (5% or less), there are typically better uses for your money than trying to pay off debt more quickly.
To get out of debt you need to know all of the details about the debt you have: your account balances, your interest rates, and your minimum monthly payments. Don’t skip this step — it’s important! Then, refer back to your budget. How much additional money can you put towards your debt each month? $100? $500?
Pay the minimums on all of your debt, and put any extra you can afford to pay towards your highest interest debt. For extra motivation, use a debt payoff calculator like Unbury.me or Calculator.net to estimate your payoff date.
To continue learning more about debt, here is your financial literacy “homework” for the week:
Saturday: You read this blog post — you’re done for the day!
Sunday: There isn’t just one way to get out of debt. Listen to Eight Steps For Breaking the Debt Cycle with Kadri & Myriam.
Monday: If you have a 700+ credit score, you might be able to reduce the interest you’re paying. Read What to Know About Credit Card Balance Transfers.
Tuesday: The first step to paying down debt is collecting all of your account balances, interest rates, and minimum payments in one place. Use this worksheet to get yourself organized.
Wednesday: Dealing with collections debt and trying to increase your credit score can feel confusing and mysterious. Listen to Hector & Mike Gymsplain Debt & Credit Management.
Thursday: Re-evaluating your student loan repayment strategy? Read Student Loans: Consolidating vs. Refinancing.
Friday: Take this quiz to see what you learned this week. And if you have any questions, join our Instagram Live at 12 pm EST to ask a FinGym trainer!
Join us next week for an introduction to retirement!
