By Ashley Russell on March 16, 2011
 1. When you are paying off the wrong debt. Focus on debt that costs you the most, such as credit cards short-term loans, and payday advances, which typically have higher interest and fees. Many people work hard to pay off their mortgages or choose to go with a shorter mortgage term, such as 15 years rather than 30 years. Consequently, however, mortgages are one of the most forgiving types of debt because they have relatively low interest rates that come along with them. Instead of focusing on paying mortgages, you should work to pay off other debts with higher interest rates first. Another example of a loan that should be paid of later is student loans which also usually have lower interest rates and are very long term.
2. When you are using retirement savings. Resist the urge to dip into your retirement savings. The whole point of putting away money into a retirement fund is to save for when you are older and no longer have a steady source of income from your job because you are unable to work. Many programs that oversee retirement savings have penalties and fees when you withdraw funds early. With these fees, penalties, and dangers involved in the early use of your retirement fund, it is not worth the risk for the extra cash now that you will no longer have access to later.
3. When other options give you a better deal. There is no argument that paying off debts, even mortgages, saves you from paying interest. Be wise with the money that you spend on your debts. Instead of putting an extra $100, $200 or even $500 a month into paying off your mortgage, you should look into putting that money toward a retirement fund. Often employers have a policy that allows them to match retirement funds that you deposit (basically meaning that you will get double what you put in), which allows you to get more money in the long run by putting into your retirement fund.
There are many different ways to manage your debt, but being smart can go a long way. Keep up with which debts will cost you more money in fees and interest rates and focus on paying those off first. However, do not let your worries about your debts cause you to withdraw money from your retirement savings because this can be futile. Overall just be knowledgeable about your debts and their rates, and that can take you a long way. |