April 26th, 2011

Spring Cleaning Strategies for Your Debt

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This week is Credit Karma Spring Cleaning week! We’ll be blogging all week about spring cleaning tips related to your finances and the rest of your life.

Now that you’ve gotten a jumpstart on spring cleaning your finances (if you haven’t, read this first), it’s time to get down to the nitty-gritty and start spring cleaning your debt.

While I don’t necessarily expect all of you to become debt-free come summer vacation time, let’s take a look at the cold, hard facts on our debts, and how we can begin cleaning them up.

Credit Card Debt

The Mess: The most common form of debt comes from the plastic we pull from our wallets on a regular basis. March Credit Karma data shows that 92% of you have some credit card debt, with the average credit card debt just under $6,800. The average consumer has nearly six open credit card accounts.

If you’ve got it: Start cleaning by stopping your spending. Don’t get yourself into more credit card debt. This might mean denying yourself those impulse buys you’ve gotten used to, and that’s a good thing. If you’re dealing with a lot of credit card debt, take a look at your budget and figure out in what areas of your budget you’re living beyond your means. Since you’ve got to keep paying your mortgage or rent payments as well as grocery bills, find other areas where you can cut back.

Tips: Spend less on gas by carpooling with a friend. If you eat out at restaurants once a week in general, decrease that to three times a month. With the extra money you’re saving, pay off more of that credit card debt. Read some more frugal tips here.

Auto Loan Debt

The Mess: Coming in second place is auto loan debt. Just over 40% of you owe money on your vehicles, about $15,000 on average.

If you’ve got it: To start cleaning up your auto loan debt, reevaluate your needs. Did you get into auto loan debt by purchasing a car you really couldn’t afford? If the answer is yes, consider downgrading to a practical, more affordable used car. If you’re happy with your investment and you have a good interest rate, start contributing more towards the principal each month to reduce the overall interest you’ll accrue.

If you don’t: Avoid it. Although making on-time auto loan payments month-to-month is helpful in diversifying your credit, it may not be reason enough to go into debt. If you know you’ll be purchasing a new car in the future, assess your budget to see what you can afford. Save up for a while so that you can make a substantial down payment in cash.

Mortgage Debt

The Mess: The debt that typically takes the longest to get rid of is your home mortgage. Over 30% of you are making mortgage payments and chipping away at an average $170,000 plus in mortgage debt.

If you’ve got it: It’s hard to get around the fact that you need to keep on top of your mortgage payment each month. But if you find that your mortgage payment is more than you can handle, find creative ways to save or even make some money.

Have a spare room? Try renting it out to a subletter or listing it on an travel site like Airbnb. Make sure you’re getting the best deal on your mortgage payments by comparing mortgage rates.

If you don’t: If you’re still renting, but want to buy in the future, make smart moves now so you’ll be better prepared. It’s unlikely you’ll be able to save up the cash you need to pay for a house in full, but there are some smart savings strategies for making sure you end up with a more affordable home mortgage payment plan in the future.

Student Loan Debt

The Mess: College enrollment is increasing, which means more student loan debt nation-wide. Nearly 30% of you are paying back about $30,000 worth of student loan debt on average.

If you’ve got it: If you can, pay more than the minimum each month. If you get a raise at work, put some of that new income towards your student loan repayment so that your overall accrued interest won’t be as high. Read some more tips about student loan repayment here.

If you don’t: If you’re planning on going to college (or going back to school), finances should be a factor in which program you choose. For general education classes, try a community college, which generally costs much less per credit unit than a 4-year school. Then, transfer your credits to the program of your choice. If you’ll be applying for a student loan, shop around to find the one that’s right for you.

Bottom Line: When it comes to any debt repayment, make sure you’re making on-time or early payments. One of the easiest ways to devastate a credit score is by making one or two late payments on a credit card or other debt. Keep track of your payment due dates by setting up mobile or email alerts to remind you to make a payment or by initiating automated payments.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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