What is so great about being out of debt? First, there is the obvious: more money to save and spend if you aren’t paying big credit card bills and other loans each month. There is another bonus: reducing debt may affect your family’s health. Two recent studies found that those with better credit have a lower mortality risk and that children in families with less unsecured debt like credit cards had fewer behavioral problems and greater levels of well-being than those in families with more unsecured debt.

Good Debt/Bad Debt

Not all debt is bad. For example, a mortgage can help you realize your dream of homeownership, create a better life for you and your family, and help you purchase an asset that can increase in value over time. Student loan debt—within reason—may help you earn a degree that may lead to a well-paying job. Even an auto loan can be positive if it means having safe, reliable transportation to help you get to work and school.

However, there is bad debt, the kind that drains your financial power. According to the 2016 American Household Credit Card Debt Study, the average household has $16,061 in credit card debt. Assuming no additional purchases are made until the balance is paid, making the minimum monthly payments on a card with 10% interest would take more than twelve years to pay off. That means you would pay $4,175,000 in interest—money better spent elsewhere. 

Living (Mostly) Debt-Free

Here are five tips to help you reduce debt:

  1. Make saving a priority. Having a pool of savings for emergencies, vacations and major purchases means relying less on credit. Even $10 a week can add up over time. Navy Federal offers a variety of accounts and tools that will help you maximize your saving strategy, so start saving today!
  2. Establish a cooling-off period. Before you buy on credit, wait a few days. You may find the initial urge to splurge has passed.
  3. Try the “snowball method.” If you have multiple credit card accounts, pay off the highest-interest one first while continuing to pay the minimum each month on other cards. Once that balance is paid off, add what you were paying to the next card’s payment and so on.
  4. Eliminate extra cards. If you have multiple store credit cards, it’s easy to charge a little here and there and rack up big balances before realizing it. Instead, work at paying off the balances. Once you have cards that are paid off, consider shredding them and using only one, low-interest-rate credit card in the future. Check out Navy Federal Credit Union’s credit cards.
  5. Consider debt consolidation. You may be able to reduce your total monthly outflow and interest expense by combining debt into one loan. It's important to understand, however, that a debt consolidation loan simply transfers the debt. You’ll still have debt, but this option may help you effectively manage and reduce that debt over time.

We’re Here For You

If you need some help figuring out how to reduce your debt load, Navy Federal offers confidential personal financial counseling to members.