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Tips for Managing Your Debt Responsibly

Whenever you look for financial advice, you probably see articles that advise you to avoid debt. In fact, I’ve written a lot about that here on this site. In fact, getting out and staying out of debt is a common characteristic that is listed among those who have reached millionaire status.

With that being said, it is becoming increasingly difficult – if not impossible for some – to get a college education or buy a house without borrowing money. College tuition continues to escalate, putting the funding of it out of reach for those families who did not start saving early enough. So many turn to the federal student loan program to fund part or all of their college education. 

Additionally, many see renting as “throwing away money.” I’m not one that subscribes to that. There are times when renting is the wisest choice. But it’s a hard mental hurdle to overcome. A mortgage where you can have a forced savings plan by paying yourself each month through the reduction of the principal, seems like the best course of action.

In many people’s eyes, the two types of debt listed above are considered “good debt.” In other words, they are the type of debt that can lead to further benefits down the road. Let’s explore that concept some more. And let’s look at some tips that can help you know when it might not be such a bad idea to borrow and how to manage the debt that you have.

Understand Good Debt

For some in the personal finance world, a mortgage is considered a kind of good debt because buying a home tends to be a reasonably sound financial investment. Even notably financial gurus such as Dave Ramsey – who himself hates debt and doesn’t advocate for it – says getting a mortgage is one that he can accept (as long as it is done on a 15-yr mortgage). 

Of course, it depends on the circumstances as to whether getting a mortgage is “good”. You need to be careful to only borrow as much money as you can afford to pay back. Generally, that means no mortgage where your payment is more than 25% of your monthly net pay. With a mortgage comes certain advantages, like getting a tax break, and having your money work better for you over time (through other investments) when you slowly pay off a mortgage instead of paying cash up front for a home (and missing out on putting that money in the stock market where you could get a better return). But you should never get a mortgage just for the tax break or based on speculation about what might happen in the stock market. 

The other type of debt some call good is a student loan. This is generally considered acceptable because most people who go to college have a higher income once they graduate. This higher income they say offsets the cost of the loans in the long run. Again, it depends on the circumstances and what your income is after college. School loan debt of $20,000 is much easier to manage than debt of $100,000. And $100,000 would be a lot easier for a doctor or lawyer to manage than a school teacher. 

With those things in mind, here are some tips to help you mange the debt you’ve found your way into.

Managing Your Student Loans

Once you have graduated, you need to be sure that you manage your loans responsibly. While it’s a good idea to try to pay them down as quickly as you can, there may be times when you need to reduce your monthly expenses. You may be able to do this by refinancing your loans with a private lender.

You may also be able to get lower interest rates as well as monthly or bi weekly options for making your payments.

Related Content: Does God Want Me to Attend College? 

Credit Cards

Credit cards can be useful, but you should always pay them off within the month, before they accumulate any interest. This allows you to take advantage of the benefits that may be associated with the card, such as points, without accumulating any of the damaging high-interest debt.

If you already owe money on your credit cards, you should try to get your interest rate lowered. You might be able to do this simply by calling the credit card company and asking. You can also look for lower-interest or no-interest cards to roll your balance onto. Yet another option is taking a lower-interest personal loan to pay off the card.

Related Content: How to Get Out of Debt and Win in Five Simple Steps

Other Types

You may need a plan to aggressively pay down your credit card and any other money that you owe. The best plan to do this is by ordering your debts either from smallest to largest amount or by highest to lowest interest rate, focusing on paying off the smallest one or the one with the highest interest rate first while making minimum payments on the others. Then, you attack the next debt on the list and so on. This is known in the personal finance world as the debt snowball method of debt payoff. 

Related Content: Is the Debt Snowball Method the Best Way to Pay Off Debt? 


Ultimately, the best way to manage debt is not to get into it in the first place. However, if you’ve gone into debt, there is also a way to manage it responsibly. One way or the other, you will have to pay it off. So do it wisely to minimize the time that you have to deal with it.

Leave a Comment or Answer a Question Below: Have you worked a debt-payoff plan before? If so, how much did you pay off? What other tips would you give for managing your school or mortgage debt? What has being out of debt taught you about yourself, money and freedom? 

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