3 Types of Debt (And What to do About Them)

The average credit card debt for American households is $15,611, according to a recent Nerd Wallet analysis of Federal Reserve data. That number represents a 2.3 percent increase from October 2013. Households with a mortgage and student loans had an average debt total exceeding $200,000.

Money is typically the primary hurdle people must scale to reach the goals they’ve set for themselves. Whether it’s starting and maintaining your own business or retiring early to a farm in Mexico, sound financial planning is essential to make it happen. Debt can serve as a means to an end, but it may also deter you from your ultimate objective if used improperly.

Mortgage Muddle

Conventional wisdom has always held that buying a home is a good investment no matter what. But nowadays, buying a home should be looked at in much the same way as investing in stock.

Home prices finished 2014 up about 5 percent from a year ago, according to data from Core Logic and the Case-Shiller Home Index. Though that may sound like good news on the surface, the year-over-year increase for 2013 was 12 percent. The Federal Reserve completely ceased its quantitative easing program in November after gradually tapering it throughout the year. Markets, including housing, have leveled out as a result.

University of Pennsylvania finance professor Jeremy Siegel along with Credit Suisse are predicting a major market correction in 2015. Unless you plan on staying in a certain city for at least a decade, buying a home now is ill-advised. Financial conditions today are very similar to 2008 when the markets were artificially inflated by easy credit. The only difference today is that the recovery has been pumped up by nearly $5 trillion in QE since 2009 as opposed to easy credit.

Read More Here is more information about finance/SBA loan to buy a business or franchise.

Now may also be one of the last windows for several years to sell your home and either break even or come out ahead. If nothing else, inquire with a few realtors to find out your home’s value and if selling is right for you. The potential proceeds could finance a new endeavor and prevent the potential of an underwater mortgage in the coming months.

Student Loans

Investing in education is investing in your future. But the relative ease in obtaining student loans makes some borrowers take out more than they need.

The Project on Student Debt said the average college senior in 2013 had $28,400 in outstanding student loans. Some students genuinely needed that much during their college years. Others smartly combined their education with an entrepreneurial spirit and used student loans to simultaneously finance business endeavors.

Regardless of the how much and why, all student debtors should exercise due diligence when repaying their loans. There are several loan forgiveness programs you may qualify for. Teachers who work in low-income school districts are eligible to have up to $17,500 of their federal direct loans forgiven. Those employed in public service may also be eligible for partial forgiveness. The Health Care and Education Reconciliation Act of 2010 allows forgiveness of the remaining balances of student loans after making 20 years of regular payments.

Credit Cards

The good thing about revolving credit accounts is that they provide a sort of emergency fund when you really need it, particularly for small businesses. Unfortunately most Americans abuse credit cards and use them to buy things they cannot afford and don’t necessary need.

Payment history and amounts owed account for 65 percent of FICO scores. Even if you’re making timely payments, a maxed-out card is bad for your score and can be the deciding factor when applying for business loans. Simply put, credit card balances should be paid off as soon as possible to prevent lingering debt and a bad credit rating.

Pay off small balances first before tackling bigger ones. Consider selling future structured settlement payments and using the cash to pay off credit accounts. Sacrificing cable television, morning lattes, and other luxuries will also help get rid of credit card debt quicker.

The old proverb that the borrower is servant to the lender rings true even today. Freeing yourself of bad debt is the gateway to liberty and an essential step to becoming a small business owner.

If you have questions about valuing a business or getting an SBA loan, please complete the contact form and Andrew Rogerson will contact you or give me a call on 916 570-2674.

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