Not All Debts Are Created Equal

Debt sucks. I know. Sometimes it feels like quick sand! You’re making progress by paying on time, paying the minimum payments and then the interest rates keep increasing your balance and you can’t seem to get a grip on it.

quicksand

According to NerdWallet, the average household in America has $16,425 in credit card debt, $180,018 in mortgages, $29,058 in auto loans, and $50,868 in student loans. If these statistics hit close to home, lets make sure we’ve got a game plan to get you debt free ASAP! By being aggressive with your debts, you will save money from expensive interest costs and set yourself to achieve financial freedom. This will lift a huge burden off of your shoulders. With this you’ve got to change your mindset as well…make the sacrifice now of extra payments towards your debt for the long term gains it will bring you.

So, lets address the 2 types of debts, unsecured and secured.

Unsecured

These types of credit accounts were given to you based on your credit profile, which also influences the interest rate you have. Unsecured credit typically have higher interest rates due to the risk the lenders are taking, since there is no collateral or guarantee. However, if your credit score is excellent you’ll most likely be given a lower interest rate.

The good thing about unsecured debts, lenders don’t have the right to any of your assets. No collateral is required to guarantee the repayment. Here are several examples of unsecured debts:

  • student loans
  • credit cards
  • personal lines of credit
  • payday loans
  • medical bills

However, if you default, the lenders have the right to hire debt collectors and to do everything possible to collect the cash from you. Keep in mind that you have credit rights so don’t let them screw with you either. 

If the lenders were to sue you in an attempt to collect the money that is owed, there is a possibility that they may garnish your wages or place a lien on your assets. If you’ve gotten this far with a lender, your credit report has already been shot dead because they do not hesitate to report delinquent debt payments to the credit bureaus. If you’re caught in that situation, don’t be afraid to talk to your creditors or debt collectors and to negotiate with them.

Secured

As for secured debts, these are tied to collateral or to an asset. 2 examples are your home and your car. As long as you don’t default on these debts you won’t risk the lender taking these assets away. This is why banks can repossess your car and foreclose your home.

CLEAVON LITTLE & CHARLES MCGREGOR BLAZING SADDLES (1974)

GET ME OUT!

OK – you’re most likely in one of the 3 types of situations and I plan to make a quick game plan for each…you’re either strapped for cash, just getting by, or you’ve got enough to make additional payments towards your debts.

Strapped for cash

Being strapped for cash means you don’t have enough cash to pay all of your bills and you’ve got to choose between one or the other. You’ve got more to loose with your secured debts, since we are talking about a home or a car so definitely keep these as priority. You’d want to consider paying those debts on time and make those minimum payments so that nothing is taken away from you. If you have trouble affording the payments, consider a cheaper vehicle, public transportation, or downsizing your house. Tough sacrifices but I know plenty of people who have done it.

As for the unsecured debts, call your lenders and explain the situation. Be honest with them and they will present options. Especially your student loan lenders because you can set a repayment plan to be income-driven, which caps monthly payments at 15% of your discretionary income.

Just getting by

If you’re just getting by and you are able to make the minimum payments on all of your bills, keep it up! Stay vigilent and don’t be late with any of your payments. By being late it can set you back by affecting your credit score and having to pay late fees.

However, take a hard look at your income and expenses. If your budget is too tight you may want to consider cutting costs like coffee and stop ordering take out and delivery services like UberEats. 

You can make extra payments

If you can afford to make extra payments, then you should prioritize your unsecured debts. Since these debts have higher interest costs, you want to eliminate them as fast as possible! You can prioritize them by making extra payments towards the higher balances or towards the debts with the higher interest rates first.

Debt can cause brutal stress and it just plain sucks. There’s no other way to describe it. Your written game plan comes down to your budget. If you need more resources and are looking for counseling, check out the National Foundation for Credit Counseling.  

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