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14 Unpopular Opinions on Managing Debt: What Financial Experts Won’t Tell You

April 25, 2024 By Catherine Reed Leave a Comment

14 Unpopular Opinions on Managing Debt What Financial Experts Won't Tell You

Managing debt is a topic fraught with anxiety for many. Mainstream financial advice often revolves around traditional strategies like consolidating loans or cutting back on spending. However, numerous unconventional and sometimes controversial approaches to debt management seldom make it into the typical advice columns. Here are 14 unpopular opinions on managing debt that challenge the norm and could provide alternative solutions for your financial woes.

1. Don’t Rush to Pay Off Student Loans

Don’t Rush to Pay Off Student Loans

Conventional wisdom urges us to eliminate student debt as quickly as possible. However, if you have federal student loans, these often have lower interest rates compared to other debts. Focusing on higher-interest debts, like credit card balances or high-interest personal loans, might save you more money over time. Plus, federal loans come with protections like deferment, forbearance, and income-driven repayment plans that other debts do not offer.

2. Sometimes It’s Okay to Prioritize Investments Over Debt Payments

Sometimes It’s Okay to Prioritize Investments Over Debt Payments

This is a contentious issue among financial experts, but there can be merit in prioritizing investments over rapid debt repayment, especially if the debt carries a very low interest rate. If the return on your investments could surpass the interest accumulating on your debt, this strategy might lead to greater net worth in the long run. It’s a riskier approach and requires careful market understanding and risk assessment.

3. Maintaining Some Debt Can Benefit Your Credit Score

Maintaining Some Debt Can Benefit Your Credit Score

Completely wiping out your debt might actually hurt your credit score. Credit utilization—how much credit you are using compared to how much you have available—is a significant factor in credit scoring. Maintaining some level of debt and making regular, on-time payments can demonstrate to creditors your reliability, potentially boosting your credit score.

4. Use Windfalls for Yourself, Not Just Your Debts

Use Windfalls for Yourself, Not Just Your Debts

When you receive a financial windfall, such as a tax refund or a bonus, the typical advice is to apply this money directly to your debt. However, using a portion for something personally meaningful or rewarding can be motivating and reduce burnout from constant self-denial. This approach helps maintain a balanced outlook toward financial management.

5. Refusing to Cut Out All Discretionary Spending

Refusing to Cut Out All Discretionary Spending

Cutting all discretionary spending is often touted as a quick way to free up money for debt repayment. However, maintaining some level of discretionary spending can make your financial plan sustainable and more enjoyable in the long term. This strategy can prevent the resentment and fatigue that often derail debt repayment plans.

6. Debt Consolidation Isn’t Always the Answer

Debt Consolidation Isn’t Always the Answer

Debt consolidation can lower monthly payments and simplify financial management, but it’s not a panacea. Consolidating debts might lead to longer payment terms or higher overall interest costs. Essentially, reading the fine print and understanding the long-term implications before going this route is critical.

7. Not All Debt is Bad Debt

Not All Debt is Bad Debt

There’s a growing narrative that all debt is inherently bad. However, some debts, like mortgages or business loans, are considered ‘good’ because they represent an investment in your future. Understanding the difference between oppressive and constructive debt is key to managing finances wisely.

8. You Can Negotiate Your Interest Rates

You Can Negotiate Your Interest Rates

Many believe that interest rates on debts are fixed. However, you can often negotiate these rates with your creditors, especially if you have a history of timely payments and good credit. Reducing your interest rates can make a significant difference in how quickly you can pay off your debt.

9. Paying Off Small Debts First Isn’t Always Optimal

Paying Off Small Debts First Isn’t Always Optimal

The snowball method, paying off the smallest debt first for a psychological boost, is very trendy. However, the avalanche method, where you pay off debts with the highest interest rates first, can save you more money over time. Choosing the correct method depends on your personal psychological needs and financial circumstances.

10. Use Cash, But Don’t Completely Cut Off Credit Cards

Use Cash But Don’t Completely Cut Off Credit Cards

Following debt accumulation, a common suggestion is to cut up all your credit cards. However, using cash for all transactions is not always practical or safe. Instead, using credit cards wisely and paying off balances in full each month can help manage debt and improve your credit score.

11. Skipping Mortgage Payments Can Be Strategic

This is highly controversial, but in some cases, if you are facing financial hardship, skipping a mortgage payment to save cash for an emergency fund or to pay off higher-interest debt could be strategic. Be sure to communicate with your lender for potential options like forbearance.

12. You Don’t Always Have to Follow a Strict Budget

You Don’t Always Have to Follow a Strict Budget

Strict budgeting is a cornerstone of traditional debt management advice. However, being overly restrictive can be unsustainable. An alternative approach is to monitor spending habits and make adjustments based on actual spending patterns and needs, allowing for more flexibility and personalization.

13. Invest in Quality to Save Money

Invest in Quality to Save Money

Investing in high-quality products and services that last longer can be more financially prudent than repeatedly purchasing cheaper, lower-quality items. This principle applies to everything from appliances and clothing to cars and furniture.

14. Sometimes, Spending Money Can Be a Form of Saving

Investing in things like home energy improvements, professional development courses, or health and wellness can reduce costs in other areas of your life. This approach sees spending as an investment in reducing future expenses rather than just immediate cost-cutting.

Unpopular Opinions on Managing Debt Offer a Different Perspective

Unpopular Opinions on Managing Debt Offer a Different Perspective

These unconventional opinions on managing debt offer a different perspective that might be better suited to certain financial situations and personalities. While they may not align with traditional advice, they provide alternative strategies that could lead to financial success when used wisely. Always consider your personal circumstances and, if necessary, consult with a financial advisor to determine the best strategies for managing your debt.

Read More:

Ditch the Debt: 8 Unconventional Tips to Achieve Financial Independence!

Debt Management 101: How To Break Free from Debt and Reclaim Your Finances

Catherine Reed
Catherine Reed

Catherine is a tech-savvy writer who has focused on the personal finance space for more than eight years. She has a Bachelor’s in Information Technology and enjoys showcasing how tech can simplify everyday personal finance tasks like budgeting, spending tracking, and planning for the future. Additionally, she’s explored the ins and outs of the world of side hustles and loves to share what she’s learned along the way. When she’s not working, you can find her relaxing at home in the Pacific Northwest with her two cats or enjoying a cup of coffee at her neighborhood cafe.

Filed Under: Debt, ShareMe Tagged With: budgeting, debt, debt management, debt repayment, financial experts, managing debt, Personal Finance

Ditch the Debt: 8 Unconventional Tips to Achieve Financial Independence!

March 6, 2024 By Catherine Reed Leave a Comment

Ditch the Debt Unconventional Tips to Achieve Financial Independence

In a world where financial freedom is the ultimate goal for many, the path to achieving it can seem daunting, especially when saddled with debt. The journey to financial independence requires more than just traditional budgeting and saving; it calls for innovative strategies that can accelerate your progress. This article unveils eight unconventional tips that can help you break free from the chains of debt and embark on a faster route to financial independence, leveraging current trends and insights to maximize your financial potential.

1. Embrace the Gig Economy

Embrace the Gig Economy

The gig economy isn’t just for side hustles anymore; it can be a powerful tool in fast-tracking debt repayment. Diversify your income streams by tapping into your skills and interests—whether it’s freelance writing, graphic design, or ride-sharing. Each extra dollar earned can be directed towards your debt, significantly reducing your repayment timeline. The flexibility of gig work allows you to adjust your efforts based on your financial goals, making it a relevant and adaptive strategy in today’s ever-changing job market.

2. Leverage Micro-Investing Apps

Leverage Micro-Investing Apps

In the age of technology, investing has never been more accessible. Micro-investing apps allow you to invest small amounts of money, often just spare change from daily purchases, into diversified portfolios. While it might seem counterintuitive to invest when in debt, the compounding returns can provide an additional income stream. This approach not only helps in debt repayment but also inculcates the habit of investing, laying a solid foundation for future financial independence.

3. Utilize Debt Consolidation Wisely

Utilize Debt Consolidation Wisely

Debt consolidation, when used strategically, can be a game-changer in your debt repayment journey. By consolidating multiple high-interest credit cards or loans into a single debt consolidation loan with a lower interest rate, you can reduce your monthly payments, as well as limit the total interest paid over time. This method requires thorough research and consideration of your financial situation to ensure it’s a beneficial move. Remember, the goal is to use consolidation as a tool for faster debt repayment, not as an excuse to accrue more debt.

4. Adopt a Minimalist Lifestyle

Adopt a Minimalist Lifestyle

Minimalism is more than a trend; it’s a lifestyle choice that can significantly impact your financial health. By focusing on what you truly need, you can reduce unnecessary spending, freeing up more funds for debt repayment. This approach not only accelerates your journey to becoming debt-free but also cultivates a sense of contentment and simplicity that is invaluable on the path to financial independence.

5. Implement a ‘No-Spend’ Challenge

 

Implement a 'No-Spend' Challenge

Challenge yourself and your household to a ‘no-spend’ month, where you only spend money on absolute necessities. This drastic measure can highlight areas of frivolous spending and help reset your financial habits. The money saved during this period can provide a substantial boost to your debt repayment efforts, proving that temporary sacrifices can lead to long-term gains.

6. Take Advantage of Balance Transfer Offers

Take Advantage of Balance Transfer Offers

Credit card balance transfer offers, particularly those with 0% introductory APR, can provide a temporary reprieve from high-interest rates. Transferring your debt to such a card can halt the growth of interest, allowing you to focus on the principal amount. Be mindful of transfer fees and the promotional period’s end date to maximize this strategy’s benefits.

7. Explore Employer-Sponsored Debt Repayment Programs

Explore Employer-Sponsored Debt Repayment Programs

With the growing recognition of financial wellness as a component of overall well-being, more employers are offering debt repayment programs as part of their benefits package. These programs can include matching contributions to loan payments or direct financial assistance. Investigate whether your employer provides such benefits and take full advantage of them to accelerate your debt repayment.

8. Optimize Your Tax Refund

Optimize Your Tax Refund

Instead of viewing your tax refund as a windfall for discretionary spending, allocate it towards your debt. This lump sum payment can significantly reduce your principal balance, shortening your debt repayment timeline. Additionally, review your tax withholdings to ensure you’re not overpaying taxes throughout the year; the extra funds in your paycheck can be directed towards debt reduction, making your repayment efforts more consistent.

Ditch the Debt and Start Toward Financial Independence

Ditch the Debt and Start Toward Financial Independence

Achieving financial independence is a journey that requires creativity, discipline, and a willingness to explore unconventional paths. By incorporating these innovative strategies into your financial plan, you can expedite your escape from debt and pave the way to a secure and independent financial future. Remember, the most crucial step is to start, and with these tips, you’re equipped to tackle your debt in ways you never thought possible.

Catherine Reed
Catherine Reed

Catherine is a tech-savvy writer who has focused on the personal finance space for more than eight years. She has a Bachelor’s in Information Technology and enjoys showcasing how tech can simplify everyday personal finance tasks like budgeting, spending tracking, and planning for the future. Additionally, she’s explored the ins and outs of the world of side hustles and loves to share what she’s learned along the way. When she’s not working, you can find her relaxing at home in the Pacific Northwest with her two cats or enjoying a cup of coffee at her neighborhood cafe.

Filed Under: Debt Tagged With: debt, Debt Reduction, debt repayment, financial freedom, financial independence, pay off debt, Personal Finance

What to Do When You Have More Bills Than Income

November 2, 2020 By MelissaB Leave a Comment

It can happen to the best of us—we have more bills than income.  Every person’s situation is unique.  Maybe you lost your job, or you had a medical emergency, or you just went through a divorce.  The situation doesn’t matter.  What matters is that you find yourself in a desperate position.  Rather than panicking or ignoring the problem, know that there are strategies to implement to get yourself out of this position.

More Bills Than Income

Steps to Take When You Have More Bills Than Income

The process of getting out of this situation isn’t quick, but finding your financial footing again can be done.

Write Down Your Financials

The first step is to take an honest account of where you are.  How much money do you have coming in?  How much debt do you have?  What are your monthly payments and bills?

Cut Ruthlessly

Now that you have your financials on paper, you need to cut ruthlessly.  What do you pay for monthly that you can slash from your budget?  Start first with subscriptions like DisneyPlus, Netflix, Amazon, etc.  You can get those services back once you no longer have more bills than income.

Next, look at categories you can’t eliminate but can reduce.  We all have to eat, but we don’t have to go to a restaurant to do so.  If you’re not already cooking all of your meals at home, now is the time to start.  Also, make a plan to shift the type of food that you’re eating so you can lower your grocery bill.  Now might be the time to eat some beans and rice and vegetarian soups.

Learn how to lower your electric bill.  Turn off appliances and devices that you’re not using at night.

Consider switching cell phone providers so you don’t have a high monthly cell phone bill.  You might want to move to a lower cost provider like Ting or Tello Mobile.

In short, cut or reduce everything you can.  Then, you’re on to the next step.

Prioritize Payments

More Bills than Income
Photo by Scott Graham on Unsplash

If there’s not enough money even after slashing your expenses, there’s not enough.  Once you write down your financials, list your bills in order of importance.  Think survival here.

Survival Expenses Should Always Be Paid First

Bills and expenses that you likely want to be sure you pay every month can include:

Food,

Clothing,

Utilities,

Housing,

Transportation

The most important goals right now are to feed and clothe yourself as well as keep the lights on (along with the heat or air conditioning) and maintain your house and car.  Without the latter two, keeping and getting yourself to work is very difficult.

Keep in mind, you’ll still want to be conservative in these categories.  You won’t be eating fancy meals and you won’t be buying designer clothes.  You’ll spend the minimum you need to get yourself fed and clothed.

Expenses to Pay with the Remaining Money

After you’ve done looking at your spending priorities, look at how much money you have left.  You may find that you have many more bills to go and only a little money left.  That’s okay.  You knew you were in this position, and now you’re writing it all out and making a plan.  This is empowering even if it feels terrifying.

Let’s say you have four debts remaining and you only have $250 leftover.  Spread that $250 between each of your remaining debts.  For instance, let’s say your four debts have these balances:

CC #1: $10,000

CC #2: $3,500

CC #3: $5,000

CC #4: $1,500

At this point, don’t pay attention to the minimum payment.  Instead, add up all the debt, in this case, $20,000, and figure out which percentage of debt each is.  For example, CC #1 represents 50% of the remaining debt, so you’ll give it 50% of your remaining money each month, $125.  CC #2 is 17.5% of your remaining debt, so it will get 17.5% of your remaining money–$43.75, and so on.

Negotiate Credit Card Rates

If you think your current financial situation is temporary, call your credit card company and ask them to reduce the amount of interest you’re paying.  By doing this, more of your monthly payment will go to principal, lowering the overall amount that you owe.  You’ll likely be successful with agents lowering your rate about 50% of the time.

Negotiate Monthly Payments

If you feel your financial situation may last longer than a few months, call your lenders and explain your situation.

Credit card companies have the power to reduce your monthly payment.  When you negotiate with them, they will ask you how much you can pay monthly.  Using the math that you did above, let them know exactly how much you can pay a month.  (You’ll tell credit card company #2 you can only pay $43.75 even if your monthly payment is $70.)  The credit card companies will likely lower your payment to what you can pay because you’re making a good faith effort to meet your obligations.

Remember to call your other lenders.  Your mortgage company may be able to work with you to reduce or temporarily suspend payments.  You can also apply for deferrals on your student loans.

The important advice is to call these companies early, before you fall significantly behind.  Call them while you still have good credit.

Find a Side Hustle

More Bills than Income
Photo by Garrhet Sampson on Unsplash

Reducing expenses is important when you have more bills than income, but the flip side is just as important.  Can you start a side hustle as a way to make extra money and boost your income?  I started freelance writing 10 years ago when our youngest was a baby.  Now, my freelance work contributes 25% of our monthly income.  Imagine adding an extra 10 or 20 percent to your current income?  How would that money help you improve your financial situation?

Final Thoughts

If you’re in the unfortunate position of having more bills than income, know that you’re not alone.  There are steps you can take to improve your financial situation and help you survive this current financial difficulty.  Most importantly, remember that this situation is temporary.  Things will get better.

Read More

How to Pay Down Your Credit Card Faster Even If You Don’t Have Extra Money

How to Feed Your Family on a Low Budget

How to Create a Zero-Based Budget in Excel

MelissaB
MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.

www.momsplans.com/

Filed Under: budget, General Finance Tagged With: budget, budgeting, debt, extra income, income

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