Debt: Understand it
Manage it

Debt can feel overwhelming , stressful and sometimes impossible to escape. But you are not alone and more importantly there are clear realistic ways to take control

What Debt Actually Is

Debt is money you borrow that you are required to pay later, usually with interest. Debt is one of the most common financial tools people use. It helps individuals and business afford things they couldn't pay for upfront. Debt can be helpful when it helps you build a future like for education or to by a home. But if not managed properly it can be very hurtful when used for things you cannot afford and grows faster than you can repay

Types of Debt

Knowing what type of debt you have helps you prioritize which debts to pay off first, understand your interest costs and choose the best repayment strategy

Not all debt should be treated the same and your payoff plan should reflect that

Credit Card Debt

Credit card debt is one of the most common and most expensive types of debt. Credit cards often have very high interest rates, which can make the balances grow quickly if not paid off

-Key Risks

High Interest

Easy to overspend

Debt can grow even if you stop using the card

Mortgage Debt

A mortgage debt is a long term loan used to buy a home. This is usually the largest debt people will ever take on, but it often has lower interest than other loans and repayment periods of 15 or 30 years

Like auto loans the collateral is the home itself

Student Loan Debt

Student loans are used to pay for college, trade school or other education expenses, usually at lower interest rates than credit cards, longer repayment period and many times special repayment options

While student debt can help increase future income, it can also take many years to fully repay

Auto Loan

An auto loan is used to finance the purchase of a vehicle, in this type of debt the car acts as the collateral, if yo stop makin payments the lender can repossess the vehicle

Auto Loans typically have a moderate interest rates, but cars lose value rapidly over time meaning you may owe more than the car is worth

Personal Loan Debt

Personal loans are flexible loans that can be used for many purposes, like consolidating other debt, covering emergency expenses and financing large purchases

Interests vary widely depending on your credit score and lender

Why Debt Gets out of Control

Debt becomes dangerous when it grows faster than you an realistically pay it back

High Interest

One of the biggest reason debt spirals out of control is interest. When you carry a balance on a credit card or loans, interest is added regularly. This means your balance increases even if you stop spending and more of your payment goes towards interest instead of reducing what you owe. You end up just making payments but no progress on your debt

Minimum Payments Create a False Sense of Safety

Credit cards often advertise a minimum payment, which makes it seem like youre staying on track as long as you pay the amount. In reality minimum payment are design to keep you in debt longer, they mostly cover interest and not the original balance. This can trap people in debt for years without them even realizing it

Emergencies Force People to Borrow

Many people fall into debt not because of poor habits, but because of medical bills, job loss or car problems. When you don't have savings, credit often becomes the only option and what starts as a temporary solution can become long term debt

Easy Access to Credit Encourages Overspending

Modern financial systems make borrowing money incredibly easy, they will offer you multiple credit cards and lines of credit. And because you are not spending physical cash, it's harder to feel the impact of each purchase, which can lead to spending more than you intended

Emotionally Avoiding Debt

Debt can be stressful, and because of that many people try to simple avoid it.

They stop checking balances, opening statements. This avoidance can make the situation worse, because the problem grows while it is being ignored. Once you stop losing track of due dates, interest rates and balances. The missed payments cause late fees and even higher interest rates and of course the debt to grows even faster

Simple First Steps to Get Out of Debt

The most important thing is to understand exactly what you owe. There is no magical way to fix debt overnight. The best strategy is different for everyone. Here are some simple steps to get started, because sometimes the hardest step is the first

Get the complete picture, make a list of each debt, the total balance, interest rates and minimum monthly payments.

Stop adding new debt, reduce credit card use, pause non essential spending. Even doing some small changes in this areas can prevent months or years of extra repayment later

Pausing or Cutting subscriptions

Look at services you have already have and see if you can be paying less or find an alternative provider that can offer you a better deal. Services like insurance internet and phone providers. Don't forget you have the upper hand and in most situations can negotiate better rates. Always shop around and do some research

Build a Small Emergency Fund

Having a small savings buffer can prevent you from falling back into debt when unexpected expenses occur. (for example $500-$1000) Without a buffer an emergency can undo months of progress.

Check our Savings Section for more information

Savings

The snowball method

1. Pay minimums on all debts

2. Put extra money towards the smallest balance first

3. Once the smallest debt is paid off, you roll that payment into the next smallest. This creates momentum and keep you motivated.

The avalanche method

1. Pay minimums on all debt

2. Put money towards the highest interest rate first

This saves you more money over time because it reduces how much interest you pay.

Check out this Video from Tae-Kim Financial Tortoise

It gives a great explanation about the two methods and a few other debt tips.

As always at Axolariz we aim to provide the best information we can, so you can be informed. This guide is meant to help you understand common debt strategies, not to provide personalized financial advice. Everyone's financial situation is different. Do your own research and speak with a qualified professional before making major financial decisions

Average rates for services

Before getting into any debt and purchasing services, do some research and make sure you are not being taken advantage. Do not go with the first offer you get, they want your money let them work for it and give you the best offers possible

One way to avoid future debt is to make sure you can afford it. When taking a loan you need to calculate the original amount and the interest rates overtime. Using a simple interest calculator can help you make the decision if you should or shouldn't take that loan. Even a few percentage points can make a huge difference over time.

Before purchasing that new vehicle make sure you are taking into account all of the expenses. Not just the interest rate but also service expenses and the value of the car once you are done paying it off.

Insurance Comparison Companies

Nerdwallet

Offers comparisons for auto, home, life with strong educational content

The Zebra

Focused specifically on insurance comparison shows quotes side by side

Compare Internet Providers

BroadbandNow

Shows every ISP available at your address, speeds and pricing

Highspeedinternet.com

Strong coverage maps and plan breakdowns

WhistleOut

Compares internet and mobile together

RESOURCES

Debt Navigation Tools

Government Consumer Protection

Federal Trade Commission

Debt Relief & Scams

Debt relief is one of the most scam heavy niches online

This is a great place to learn what debt collectors can and cant do. It shows you your rights as a consumer even, when you are in debt. It also explains debt settlement risks and how to spot scams.

Visit

Nonprofit Debt Counseling

National Foundation for Credit Counseling

NFCC

Offers budgeting help, debt management plans, and housing counseling

Visit

Financial Counseling Association of America

FCAA

Lets users connect with certified counselors in all 50 states

Visit

Budgeting

Savings