Some people live their financial lives by the old adage, “It takes money to make money, so I don’t see a problem with going into debt.”
You know, there’s some truth to that. Some debt makes sense—like a home mortgage loan or a student loan.
But most debt, especially high interest loans, empty your pockets. A high-interest loan means it’s much more expensive for you to borrow money.
Let’s say you get a payday loan for $500.
PLUS $500
- The company charges you a $50 transaction fee to set up the loan.
MINUS $50 - By the end of the month, you pay back the $500 you owe them.
MINUS $500 - You pay 400% interest on the loan, which for the month ends up being about $160 of your hard-earned cash. MINUS $160
That means, in the end, you paid $710 and only got $500 in return.
But there may be situations, like an emergency, where you need cash right away. If this is the case, make a plan on how you’ll settle the debts and stick to the plan.
Here are some tips to sticking to your get-out-of-debt plan:
- Make a budget and stick to it. Here’s a budget worksheet to get you started.
- Watch for signs of overspending. Stick to the essentials of what you need.
- Make more money: Try moonlighting or find a job that pays more.
- Pay more off of the loan: Making extra payments on a loan drastically shortens the time it takes to pay off the loan.
Getting out of debt is a challenge, and you’ll likely experience setbacks along the way. But that’s OK. Don’t get discouraged by hiccups and stick with the plan you put in place.
You can find more money managing tips at MyMoney.gov or Consumer.gov.
