There are several different schools of thought about what order that you should employ when paying off debt. Some say to attack the high interest debt first. Others say that you should get rid of the smallest debt first. Depending on your style of personal finances, and what motivates, either of these methods can work for you. But there is another method for deciding what to pay off first that I read about at Poorer Than You: How annoying the debt is.
Debt annoyance theory
This theory of paying off debt has you look at what debts are bothering you the most. …read more

When I started college, I got a part-time, on-campus job working in the university cafeteria. I was paid minimum wage (which at the time was somewhere in the neighborhood of $5.75 an hour). It wasn’t a job that offered unimaginable riches, but it did help me buy books, food, and have a little fun (I was there on scholarship, and my parents paid for my housing).
After two years, I decided to be a Resident Adviser in the dorms. That meant a free room, so my parents paid for my meal plan. I had a small stipend that covered other expenses, …read more

One of the things that struck me a couple of years ago when I was buying a home, was that different mortgage brokers and lenders told me how much I could afford. After looking at my income and my debt load, they came up with a number that would get me into a bigger (and presumably better) home. This number was invariably between 30% and 36% of my monthly income. One broker came back and told me I qualified for a mortgage payment of 40% of my monthly income!
Clearly, this is not something I was comfortable with. In fact, you …read more

I love The Office. And one of my favorite episodes involves a debt-ridden Michael Scott trying to declare bankruptcy. As you can see, though, it doesn’t exactly go well:
Michael was looking for a quick and relatively painless solution to his money problems. However, bankruptcy usually isn’t the answer to such problems. Even though you can get some protection from your debts through bankruptcy, recent laws mean that you can’t discharge everything that you might like to. And bankruptcy might not even be the best choice. It might be better for you in the long run to try and get out …read more

There are few things in life as scary as getting a debt collection notice. Indeed, getting a phone call or letter from a collection company can be quite unnerving. For many people, the instinct is to pay it immediately (if possible) and move on. However, before you start giving out personal and payment information, take a deep breath. Did you already pay off the debt? Do you actually owe the money? Can you afford to pay it right now?
A good way to start straightening everything out, and to make sure that you actually owe the debt, is to get a …read more

One of the videos making the rounds on the Internet is a call for a “Debtors Revolt”. This video (with two swears, neither of them the F-bomb), highlights the plight of a woman whose credit card interest rate is being raised. She claims she has been responsible, and that there is no rationale for the hike. (Although she later admits she did miss one payment.) At any rate, she does make some good points about credit card practices and their inherent fairness.
But it is also important to realize that credit cards never claimed to be fair. And, while the new …read more

It is true that in the realm of debt, student loan debt is not considered “bad.” When you go to repay your debts, the fact that student loans are usually low interest and fixed rate (if you have consolidated them) means that you can leave them to the end of your debt repayment plan. On the other hand, debt is still debt. It is very easy for “good” debt like student loans to go bad.
Borrow as little as possible for your education
You can protect your financial situation after college by borrowing as little as you can. Efforts to get scholarships …read more

One of the ways that credit card issuers make money is by charging high interest rates and attempting to keep you in debt. Minimum payments are purposely low so that you can continue to pay them, and interest rates are high so that credit card companies make more money. This system is an indispensable part of the way that credit card issuers make money. It is also a very large part of the way our economy works.
But what would happen if all the debtors revolted, like this woman advocates? In reality, if credit card issuers lowered their rates and moderated …read more

According to a report from the research arm of Congress, American International Group, one of huge financial institutions to experience extremely dire straits as a result of the financial crisis, has reached a point of stability. However, the same report has raised doubts concerning whether or not AIG will ever be able to restructure and pay back the money it borrowed from the government.
 
This report from the Government Accountability Office came at the same time as Representative Edolphus Towns of New York was preparing to raise the possibility of renegotiating A.I.G.’s debt. Towns, the chairman of the House Committee on …read more

When making your payment priorities, consider secured debt vs. unsecured debt.