Debt can be extremely detrimental to your financial future if you're not careful. Fortunately, there are ways to manage debt so it works for you, rather than against you - but it does require a little thing called self-discipline.
Here are four categories of debt and how to improve them:
Credit Card Debt
Shop around - Many websites provide information on a wide variety of credit cards. Compare cards and be sure to get the one best for you.
Use Credit Regularly - Well, and pay it off regularly, too. Making payments will give your credit score a boost. But it is important to never miss a payment because that is the biggest threat to your credit score.
Rewards - Don't forget to cash in your rewards if you have them.
Prioritize - Pay private loans first and federal loans second, in order of interest rate from high to low.
Understand Your Options - You may be able to make smaller payments based on your income of even have your debt forgiven in some cases. Be sure to explore all of your options. Teaching? If you teach or serve your community, you may qualify for the Teacher Loan Forgiveness program or have the balance of your debt forgiven after 120 payments through the Public Service Loan Forgiveness program.
Taxes - Currently, you can deduct up to $2,500 or the total amount you paid in student loan interest (whichever is less, as long as your income is below the IRS limits) saving you money on your taxes.
Consolidating - If you're having trouble keeping track of your student loan payments, consider consolidating. Just be careful, because you may end up paying fees that cost you more in the long run if you aren't going through the government's loan servicer.
Be Prepared - Car dealerships want to make extra money by getting you into a loan through their lenders and giving you a higher rate based on what they think of your credit score. Know your credit score before shopping, and negotiate!
Pay More - If possible, set up automatic loan payments and specify that the money should be applied to your loan principle. You should only do this if you don't have any other, higher-interest debt, of course.
15 is the Magic Number - Go with a 15-year fixed mortgage if possible. It will cost more per month, regardless of whether it is interest-only or adjustable, but you will pay off your debt much sooner and save a lot of money in the long run.
Adjustable Rate Mortgage (ARM) - Consider an adjustable rate mortgage with a low initial interest rate and monthly payment if you're positive you will only be in your home for less than five years.
More Taxes - Take advantage of tax deductions. Interest paid on your mortgage is tax deductible. Check with an expert to maximize your savings.
Refinancing - It's possible you can lower your interest rate and monthly payment. Do the math and see if it makes sense.