As Americans continue to pile on debt, staying on top of payments should be a top priority in the current financial climate, one expert cautions.
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“We’re living in a time of rising interest rates, so it’s never been more important to get out of—and stay out of—debt,” Beverly Harzog, consumer finance analyst and credit card expert for U.S. News and World Report, told FOX Business.
According to Northwestern Mutual’s 2018 Planning and Progress Study, average personal debt climbed higher than $38,000 last year. Americans were also more likely to accrue between $5,000 and $25,000 worth of debt than savings during the same timeframe– with 33 percent having added an amount within that range to their debt levels versus 17 percent who saved.
One in 10 Americans surveyed said they expected to be in debt for the rest of their lives.
For those looking to tackle mounting debt levels, here are some tips to manage your financial situation.
Make minimum payments
“When it comes to debt, the most important thing you can do is make your minimum payments across all accounts – no matter what,” Amin Dabit, director of advisory services for Personal Capital, told FOX Business.
According to Northwestern Mutual, the main sources of debt were credit cards and mortgages, which each made up an average of 25 percent of an individual’s debt. While student loans compromised 6 percent of the average debt total, for millennials, it made up 28 percent.
While 20 percent of people allocate half of their income toward debt repayment, Dabit advises individuals not to spend more than 10 percent of income on consumer debt – credit cards, student loans, rent, etc. – in order to retain the ability to pay taxes and save for retirement, or emergencies.
When beginning to tackle debt loads, it can be helpful to prioritize which payments are the most pressing.
Dabit recommends listing out all debt in order from those carrying the highest to lowest interest rates, and making payments on dues with the highest interest rates in order to eliminate the burden more quickly.
“As a rule of thumb, if the debt interest is [3 percent to 4 percent] higher than the 10-year treasury rate, you should generally aim to pay it down faster,” he said.
Harzog added that tackling credit card debt first can be helpful, as credit cards have high interest and compound interest.
“Carrying a [credit card] balance from month to month, can lead to a mountain of debt,” she said.
On the other hand “good debt,” including things like mortgages, can be paid off more gradually, Dabit noted.
There are a number of small ways individuals can begin to chip away at debt balances. Harzog says it’s important to set a budget and track spending, as well as pay more than the minimum payment on your credit card balance whenever possible.
She also recommends that people with good credit consider getting a balance transfer credit card. Account balances can be moved onto the card, debts can be consolidated and money can be saved on interest if balances are shifted to an account with lower interest.
Dabit recommends that people also maintain open lines of communication with their significant others regarding their debt levels, as it can affect a couple’s financial future, including things like the likelihood of qualifying for a mortgage.
As previously reported by FOX Business, debt can be a contributor to divorce, when individuals are not aware of the financial situation of their partner.
If you feel like your situation is spiraling out of control, you can always consult a professional.