Financial Wellness • Mercer County, WV • 3 / 4
Getting Out of Debt • Mercer County, WV
Debt is borrowed money you owe. Some debt is okay, while other debt can become harmful and expensive.
Good Debt vs. Bad Debt
- • Good debt: Low interest (under 8%) can help you build long-term wealth by investing in a house or education.
- ◦ Examples: mortgage, student loan for college.
- • Bad debt: High interest (15%+), does not help you build wealth, encourages overspending.
- ◦ Examples: credit cards that you cannot pay regularly, payday loans.
Two Methods to Pay Off Debt
- • Snowball method: Pay off the smallest debt first, then continue by paying off the next smallest. It can help you stay motivated by getting the small debts out of the way first.
- • Avalanche method: Pay off highest interest debt first (usually credit cards). This will save you more money on interest over time.
Negotiate with Creditors
- • If you are behind, call them. Explain your situation.
- • Many will work with you by lowering your interest, letting you skip a payment, or creating a payment plan.
- • Do not ignore the bills because that will only make the debt worse.
Avoid Payday Loans
- • These loans can charge 400%+ interest in a very short amount of time.
- • For example, if you borrow $300 from a payday lender, you may owe $350 just two weeks later.
- • If you cannot pay, you roll over the loan and owe more, which can trap you in debt.
- • Avoid these at all costs.
Action Step
- • List all your debts: who you owe, balance, and interest rate. Choose the snowball or avalanche method. Commit to paying more than the minimum on at least one debt.