Taking On Your Debt
The average American is swimming in debt, from student loans to credit cards, mortgages, and so on. U.S. consumers racked up $21.9 billion in credit card debt during the third quarter of 2016, and we are now on track to finish 2016 with an $80 billion net increase in credit card debt.
Since credit cards typically come with the highest interest rates, those are the usually the first target when getting oneself out of debt. The current national average interest rate for credit cards is over 15%.
In fact, some advisors will even say that before you start saving for retirement or putting a down payment on a house, you should significantly reduce, if not eliminate your credit card debt. So pull out those scissors, cut up your cards, and get paying. Consolidate into one single low interest card if possible, or focus on them one at a time, starting with the highest interest rate one first.
Americans owe nearly $1.3 trillion in student loan debt, spread out among about 44 million borrowers. In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up 6% from last year.
Federal student loans typically have interest rates in the 4% to 6% range, depending on the exact type of loan. Private student loans on the other hand, can come with rates in the double digits.
Saving for retirement and paying off student loan debt doesn't have to be mutually exclusive. Many people with lower-interest loans can avoid throwing extra money at student debt at the expense of saving for retirement.
The goal shouldn't necessarily be to pay off your mortgage as soon as possible. If you're paying under 4% on your home loan, any extra cash you have should go toward retirement (assuming you don't face high-interest credit card debt).
The truth is that you can be making more money by investing that money for the long-term rather than by putting it toward prepaying your mortgage. Most people have under-saved for retirement (one third of Americans report having no retirement savings at all), and that's what they should be focusing on.
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