News From Our Blog

Ask Marietta: Paying Down Debt

Video description

In this episode, Marietta answers the age old question, “What’s the best way to get rid of personal debt?”

Video transcript

Hi it’s Marietta with the Consumer Action Handbook. After our Google Hangout we had so many questions left to answer. We heard from so many people that we wanted to take time to answer as many as possible. And so that’s what I’m here to do, to answer more of your questions.

So without anymore…let’s just dive right in.

Today’s question is really about credit and it’s says, “What’s the best way to get rid of personal debt.”

And there are really two schools of thought on this in the personal finance world.

The first way is based on interest rates. Basically you pay down the debt with the highest interest rate first and then move through all of your debt until you’ve paid off all your debt all the way.

Over time this will allow you to pay less interest on each credit card or each type of credit because you’re paying off things with the higher interest rate first.

The other strategy is more so based on the balance on the debt, but it’s in the reverse. You pay off things with the lowest balance and then move up the line. So if you have several accounts you pay off something with a $500 balance completely and then you pay off things that have a $1000 balance and move up the line.

The strategy behind this gives you a sense of accomplishment and allows you to have some momentum. You’ve seen success, you’ve seen that you’re able to do this that you’re able to tackle your debt and pay it down and get rid of it so it gives you the momentum and strength and just the willingness to stick to it because you’ve seen that you’ve done it and you can continue you to do it.

Regardless of what strategy you use, you should pick one that works best for you. Knowing what your motivated by is a good thing. If you’re motivated more so by rationality and numbers, maybe the interest rate version works better for you. But if you need something to get you started and give you some steam to keep going, maybe using the balance as your motivating factor is the best one.

Regardless always of which method you use, you definitely want to make sure you’re making at least the minimum payments on all of your accounts because that demonstrates you’re making significant strides to managing your credit reports and credit history.

So thanks for your question.

If you’d like to ask us a question, we’d love to hear from you! You can write us by postal mail to Ask Marietta, 1800 F St. NW, Washington DC, 20405, email us (askmarietta@gsa.gov) or tweet us using the hashtag #AskMarietta.

Learn How Fees Affect Your Investments

If you’re an investor, or if you’re thinking about investing, read Investor.gov’s How Fees and Expenses Affect Your Investment Portfolio.

Fees associated with investment products and services may seem insignificant, but they can have a major impact on the value of your portfolio over time.

Use Investor.gov’s bulletin to:

  • See the impact of fees on a sample investment.
  • Learn about transaction fees and ongoing fees.
  • Find out what questions to ask a financial professional.
  • Get tips on what to do if you think your fees are too high.

Childcare can be expensive, but there are programs that may help you cover the cost. See if any are a fit for you.

How to Build a $1,000 Emergency Fund in 10 Months

By Katie Bryan

Do you have $1,000 set aside for emergencies? If you already do, you could probably use another $1,000 in that account. Experts recommend keeping at least three months expenses in a reliable, liquid account – though even an extra $1,000 can be a life-saver. But finding $1,000 to save isn’t always easy. That’s why we’ve put together this 4-step plan on how to save $1,000 in 10 months.

Get Started with These 4 Steps

  1. Find a Safe Place to Save Your Money – You will want to save your money in an account that you can access easily in case of an emergency. That means you should probably not keep this savings in a U.S. Savings Bond or in mutual funds. Choose a traditional savings account or a short-term certificate-of-deposit (CD), currently the most attractive accounts. (Early withdrawal penalties on a CD rarely lower the yield below that of a savings account.) Consider opening a new account or sub-account for this money so you’re not tempted to spend it. Most importantly, do not keep savings in a checking account, which pays no or low interest and is too easy to access.
  2. Save $100 a month – If you are already saving $100 a month, great! Skip to step 3. If not, you need to either earn $100 more a month or cut back in order to find that $100 to save. America Saves has a list of 54 ways to save money to get you started. It can also help to pay yourself first and save the $100 at the beginning of the month instead of waiting to see if you have money left over to save at the end of the month.
  3. Automate Your Savings – Setting up an automatic way to save is one of the best ways to save. Once you set it up, then it happens without having to think about it. Here are two ways to automate your savings. 1. Every pay period, ask your employer to deduct $100 from your paycheck and transfer it to a savings account. Ask your HR representative for more details and to set this up.  2.  Ask your bank or credit union to transfer $100 from your checking account to a savings account every month.  Talk to your local bank or credit union to set this up.
  4. Watch Your Savings Grow for 10 Months – The final step is to sit back and watch your savings grow. How often do you look at the calendar and think it’s half way through 2014 already? The same will apply to your savings; Before you know it you will have that $1,000. They key is not to touch the money unless you have an emergency – that’s what the money is there for after all.

Once you have at least $1,000 in your emergency account, continue your savings success and continue to build your emergency savings or apply that money to a new savings goal. Perhaps you have debt you need to pay down or want to save for a car or home.

No matter what you are saving for, America Saves can support you with tips and advice through emails and text messages. Sign up for these by taking the America Saves Pledge Today.

Katie Bryan works for America Saves, managed by the nonprofit Consumer Federation of America (CFA), which seeks to motivate, encourage, and support low- to moderate-income households to save money, reduce debt, and build wealth. Learn more at americasaves.org.

Want to improve your credit score, but don’t know how? This guide can help you find legitimate ways to improve credit.