Create a successful strategy to get out of debt

Debt has a way of creeping up and hitting you without realizing it. There are certain debts that should be a top priority to payoff. Here are three different types of debt and suggestions on which ones to payoff first.

High interest with no end point

Credit card debt typically has higher interest rates, lower monthly payments and sometimes takes what seems like a lifetime to pay off. Say for instance that you purchase a television for $2,000 on a credit card with a 24.99 percent interest. If you pay the minimum payment of at least $30, and pay the interest plus one percent of the balance, you’ll need 127 months – or 10 years and seven months – to pay off the television. If you increase the payment to at least $50 per month, the time to pay it off goes down to 76 months – or six years and four months. Avoid impulse purchasing by factoring in the long-term consequences of credit card debt. Stay ahead of debt by paying as much as you can reasonably afford to achieve a complete payoff faster.

Examine unnecessary on-going debt

A monthly bill for something that isn’t a utility or necessity can add up over the long run. Cable, on-demand video channels and other frivolous regular entertainment expenses are examples. Have you ever looked through your monthly entertainment expenses and given them a thorough audit to see if you’re utilizing them regularly? If you subscribe to a monthly on-demand video service, but only watch one show every few months, it probably isn’t worth paying for. Eliminate the expense and save yourself money.

Determine how to attack long-term debt

Long-term debt includes auto loans, student loans and mortgages. These types of loans have repayment terms often greater than five years and often involve dollar amounts ranging from five-to-six figures.

Auto loans are often the shortest term loans in this category, with terms that usually don’t pass 72 months. The interest on these loans can accumulate quickly and the note can “go upside down” if the value of the car depreciates faster than a borrower can pay for the vehicle.

Student loans can range from 10-30 years, depending on the amount you borrow. The interest paid on these loans, however, is tax deductible to $2,500 for people making less than $80,000 or $160,000 for married couples filing a joint return. For full information on student loan deductions, please visit the IRS website.*

Mortgages are perhaps one of the best investments you can make in your life. Not only are you investing into your property – a place you’ll likely be calling home for a long time – but you can also take advantage of the tax credit associated with interest paid on the loan up to $1 million. Visit TurboTax’s website for a more thorough understanding of the mortgage interest deduction.

IRS website TurboTax website

*Travis Credit Union does not offer tax advice. Please seek a tax professional for official tax advice.