Household debt has reached $12.7 trillion, an amount mainly spread out among mortgages, student loans, credit cards, and auto loans.
Many economists see this uptick in debt as a sign of economic recovery. But for the individual borrower, debt can be a major burden.
If you hold a share of this $12.7 trillion in household debt, here are some tips for getting out of the red.
1. Find the best student loan repayment plan
Student loans play a big role in our current national debt. In fact, student debt increased from $500 billion in early 2007 to over $1.34 trillion today.
According to data from the Consumer Financial Protection Bureau, $8.2 billion of those loans belong to subprime borrowers with a credit score of 580 or lower. That level of subprime debt is 32 percent higher than it was a year ago.
So it’s no surprise that student loan default rates have also gone up. The New York Fed reported that 11 percent of student loan balances have been delinquent for 90 days or more.
If you borrowed money for college or graduate school, you know how burdensome student loans can be. But defaulting has a host of bad consequences that can hang over your head for the rest of your life. You need a plan of attack for your student loans.
Thanks to these options, you’re not stuck with your current terms, interest rates, or loan servicers forever. You can change your plan, make your payments more manageable, and avoid default.
And if your payments aren’t too high, consider paying your student loans off early. Throwing an extra payment at your loans here and there can help you overcome your debt faster.
2. Pay off high-interest credit card debt first
If you’re struggling with high balances on your credit cards, you’ll want to tackle that first. Credit card debt makes up $764 billion of the current total debt. The average interest rate on a credit card is about 13%.
If you’re revolving a balance with such a high interest rate, consider whether paying off your credit cards deserves your primary focus. You might be able to transfer your balance to a new card to take advantage of 0% promotional APR.
It could also be a smart move to take out a low-interest personal loan to tackle your credit card debt. Whatever you choose, your goal is to reduce the money you waste on interest.
If you’re a new grad getting a credit card for the first time, strive to pay it off in full every month. There’s a persistent myth that carrying a balance helps build credit. But in reality, carrying a balance just costs you more money.
So, try your best not to spend more than you can pay off every month. By making on-time payments and reducing debt, you’ll build a strong credit score.
3. Balance mortgage payments with saving for retirement
Mortgages make up the greatest portion of our $12.7 trillion in debt. In fact, Americans owe $8.6 trillion in housing loans, even more than they did in 2008.
But economists aren’t too worried about another global financial crash. According to the New York Fed, lenders seem to have cleaned up their practices when it comes to assessing candidates.
The report showed that 61 percent of new mortgages went to borrowers with strong credit scores of 760 or greater. In 2008, only 36 percent of new homeowners had credit at this level.
Presumably, homeowners today are more equipped to handle their mortgage payments than those 10 years ago. Some may even strive to pay their mortgage off early.
But with the average interest rate for a 30-year fixed mortgage around 4%, according to Wells Fargo, it might be smart to stick to the standard plan and put your extra cash elsewhere.
For instance, it could pay off to invest extra income in a retirement savings account instead. Or you could put it toward loans with higher interest rates.
By weighing your various responsibilities, you can put your monthly income where it will go the farthest.
Avoid taking on more debt than you can handle
While some economists hail the new debt stats as a sign of economic growth, you should still be cautious about taking on too much debt.
Before signing on the dotted line of any loan, learn the details of your repayment plan and make sure your payments fit within your monthly budget.
Loans can help you earn your degree, establish a career, or a buy a big-ticket item like a house or car. But if you’re looking to borrow, first put a plan in place to manage your finances so that you’re in control.
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Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|