Meanwhile, a credit card cash advance is also a type of debt, but one that’s incredibly expensive and often thought of as a last resort. Business.com states that cash advances come with multiple fees and interest rates that are typically much higher than average.
Given these differences, you should read up on the types of loans before signing off on anything.
Rank your debts
There are two main types of debt: secured, which are loans that have assets promised as collateral, and unsecured, which is based on the borrower’s creditworthiness. As such, secured debts should take top priority in repayment to avoid losing anything important. Of course, this is only a general suggestion, and circumstances might force you to regroup — like when a debt collector obtains a court judgment, for instance. In the end, managing debt priority is key to minimizing the loss of assets.
Go federal for student loans
Whether you’re going back to school yourself or are preparing to send off your own kids, you need to know the best route to take when applying for student loans. A primer on federal student loans by the US Department of Education explains that interest rates for these are fixed and usually lower than private loans. Additionally, some federal loans can be subsidized, meaning the government covers the interest for you while you’re in school. However, the requirements to qualify are stricter compared to unsubsidized loans.
Paying debt is hard but doable
There will be days when you feel emotionally drained from all your financial obligations. But as we’ve said in our post on ‘How to Pay Off Debt Even When You Hit a Setback‘, this is a common and completely valid feeling. It’s important to remind yourself that there is a light at the end of the tunnel, and there are many ways to overcome your worries with the support of family and friends.
Everyone dreams of living debt-free, and the first step in achieving that goal is to inform yourself about debt. Hopefully, the points above will help you on your journey towards financial freedom.
