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How To Pay Off High Interest Debts

Hi guys, Doug Raible back again for another Money Tip Monday. One question we get all the time at Sterling Heights Financial Group is what debts should I try to pay off?

There are many theories to this question. Some people say rates are low, keep all your debt and invest everything. Others say you should not have any debts ever pay everything with cash. We believe the decision of what debts to take on come down to the collateral of that debt. What we mean by that is, what is the debt actually on that you are purchasing. Is it a house, a boat, a shopping spree, college, etc?

Some debts we feel are completely fine to keep and do not be paid off immediately. Others, we believe are toxic to your financial plans and should be eliminated or reduced as quickly as possible. The first one is credit card debt. Now there are some 1 year 0% interest cards out there, but most credit cards tend to be in the range of 16-19% interest. These can be extremely harmful to your finances. The first is what the debt is purchasing. Buying a bunch of clothes, a vacation, and new wheels for your car are not appreciating assets. In fact most things purchased on a credit card can’t even be sold for what you paid for them. This is a concern in itself, but add the fact that you are fighting against a possible 19% interest compounding each year against you, and things can end badly. Even if you are investing your money correctly and saving each month, it’s doubtful you will compete with a negative 19% every year.

Next are student loans. While college can be a great investment to begin the career of your dreams, the debt is more of a nightmare. You can’t sell that piece of paper known as a degree to pay those loans off. They can be inherited, and a lot of times they are over $50,000 when it’s all said and done. This again has interest rates compounding against you as you try to pay down the loan. It is ideal to refinance these loans to find the lowest available interest rates and lock those in. At the very least, you’ll reduce the amount of interest you’ll have to pay on these loans, even if there isn’t an asset behind them as collateral.

There are many other debts that will discuss in the future, but these are the worst in our opinion. We feel you should be diligently paying these down and getting the lowest interest rates you can find. As always we try to help you get one step closer to financial security. And remember to Invest In You.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

This is a hypothetical example and is not representative of any specific investment or strategy. Your results may vary.

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