Polonius is the guy in Hamlet who famously warned: “Neither a borrower nor a lender be.”
Fortunately, he wasn’t living in America. If he were, he’d be appalled at what’s going on today. Based on 2007’s consumer debt numbers, the average American owes around $8,500 (excluding mortgages) — and almost half of that is high-cost credit card debt.
This isn’t a great way to live: It means your ends don’t meet, you’re spending too much, and you don’t have adequate emergency reserves. In fact, if you were to charge $5,000 on your credit card every year and make only the minimum payments over 30 years, you’d have blown nearly $1 million in interest fees — and you’d still owe some $74,000! Basically, people with loads of debt probably aren’t managing their stuff right. But it’s not too late.
Here are some tips to get you to that heavenly land of zero debt:
• Borrowing your way isn’t the way to go. You know those ads about “bill consolidation” interrupt your favorite TV shows? What are they all about? You may lower the interest rate, and if you’re a homeowner, you may get a tax deduction. But here’s what usually happens: you turn six small debts into one big one. Then, guess what? Those other debts come back, big time.
• Size up your debts. Lay it all out—how much debt, how much it costs (interest rate), where it came from. Separate the “good debt” (if any) from the bad debt.
• Roll up your sleeves and make a payoff plan. Pay off your debts with the highest interest rates first, then go on down the line. Cut costs. Get agreements. You aren’t the first and you certainly won’t be the last — it can be done.
• Tear up those credit cards — the best way to stay out of debt is to make it harder to get into debt! Keep only the cards you need. If you absolutely must have a credit card, pay it off in full every month so your $60 shoes don’t wind up costing you $350.
Remember, not ALL debt is bad. Sometimes, it makes sense. If you’re buying a home (the American dream, right?) or an asset that will appreciate, debt is okay. Bad debt comes from spending money on stuff you don’t have—and, quite possibly, don’t need. You’re just digging yourself deeper.
Jennifer Openshaw, author of "The Millionaire Zone", is co-founder and president of WeSeed.com, whose mission is to help real, everyday people use what they know and love to learn about stocks, make smarter money decisions and ultimately take control of their financial destinies. You can reach her at jopenshaw@weseed.com.
The views expressed here are those of the author and do not necessarily reflect the positions of LendingTree, LLC.
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