How to Attack Different Types of Debt

August 20, 2013

By Benjamin Feldman, Personal Finance Writer,ReadyForZero

There are a lot of people in America fighting debt right now, and it's one of the biggest obstacles you can face when trying to start saving. When a large portion of your monthly income goes toward making debt payments, finding any extra money to put in your savings account can feel impossible.

So how can you conquer your debt and put yourself on the path to saving? It starts with knowing what types of debt you have and how to approach each type strategically.

Credit Card Debt

Let's start with credit card debt because it is one of the most common and most pernicious types of debt. With credit cards, your strategy needs to focus on the interest rates for each card. If you have a card with a 20% or higher interest rate, you should treat that as an emergency and focus all your effort on getting it paid off! You can pay the minimum payments on other debt while you dedicate all extra cash to paying off this high interest account.

You can also call the credit card company to see if they will lower your interest rate -- believe it or not, sometimes they’ll do it, especially if you've been making payments on time for at least two years and have a relatively healthy credit score. You can also look into whether a balance transfer would work for you. (Just be sure to read the fine print carefully on any balance transfer offer, because there are often hidden fees or charges)

Student Loan Debt

Student loans are a little different than credit cards. For one thing, they usually have lower interest rates (between 2% and 10%). But just because the interest rate may be lower, that doesn’t mean you can afford to ignore them or fail to strategize how to pay them off. In order to create the right strategy, think about how much you can pay on these each month.

If you cannot make the minimum payments on your student loans, there may be a program that can help you. Look into the IBR program and the Pay As You Earn program, which lower your monthly payments to an amount you can afford (with the downside being that more interest accrues). Also see if deferment or forbearance may help you. On the other hand, if you have a little extra to pay toward your loans, consider doing biweekly payments where you pay half of your regular monthly payment every two weeks. This will result in you paying the equivalent of one extra payment per year and could save you a lot of interest charges in the long run!

Other Types of Debt

So what if you have other types of debt? You can strategize for those as well. For example, lots of people get stuck with medical debt after a particularly bad illness or injury when they must go to the hospital or have an expensive operation. One of the important things to know about medical debt is they can usually arrange for a repayment schedule that works for you. In other words, if you owe a hospital $3,000, in most cases they will let you spread payments over two, three, or even five years. You simply have to ask them and be clear about what you’re able to pay each month.

Ultimately, no matter what kind of debt you have, you will need to make a plan for how to pay it off. You should create a budget and use as many budgeting tips as you can find to minimize your monthly expenses while you pay off debt. Then decide which debt you’re going to focus on first, and challenge yourself to pay it off as quickly as possible!


Benjamin Feldman is a personal finance writer for ReadyForZero, a site that helps people pay off debt by showing them a visual plan and a graph of their debt and interest. You can read more of his work at the ReadyForZero blog.

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