Transcripts

Mike Carruthers:
Having debt, it's not always a bad thing.

Liz Weston:
There are some debts that really do help you get ahead. Most of us need a mortgage in order to afford a home. Right now mortgage debt is incredibly cheap and for most people it's tax deductible. So, you don't want to be in a hurry to pay that off.

Finance columnist, Liz Weston, author of the book, Deal With Your Debt says, however there are debts that are toxic.

Those are things like credit cards. The worst kind of debt you can have even if you have a low rate…you probably want to pay that off- because, not only is that costing you money in interest, but you are tying up the credit that you could use in an emergency.

So, if you really want to tackle paying off your debts, where do you start?

The general advice is pay off the highest rate credit card first. Some people prefer paying off the smallest balance first, so that they get that feeling of: "Hey, I did it, some victory." Well, I'm going to add something else to the mix. If you have a card that's close to it's credit limit, that's the one you want to pay down first. Because, once you hit your limit, not only is the interest rate probably going to shoot up, but you might have problems with interest rates on the other cards.

Because as many people have found out if you get in trouble with one credit card, it could affect your other credit cards.

They don't realize that hidden in the fine print of the agreement they signed, or something that was sent to them after they got their card, Is a term called universal default penalty. Which means if you default on any of your debts they can raise your interest rates.

At somethingyoushouldknow.net I'm Mike Carruthers and that's Something You Should Know.