Personal Finance Weekly Thread: Debt

Good afternoon, and welcome back to our weekly thread about Personal Finance! This week we're all about debt, so buckle your seat belts and let's get going.

Once you start getting into personal finance, you'll learn that debt in and of itself isn't so bad. Sure, you can bad debt, like $20k in credit card debt. But you can also have ok debt, like a reasonable federal student loan or a reasonable car loan. You can even have good debt like a reasonable mortgage. At the end of the day, debt is just another tool, as outlined in this article.

For most of us, however, we are dealing with bad debt. Plain and simple. Whether it's credit card debt, outrageous student loans, underwater car loans - it's usually bad. Some of it may be ok debt, some good - either way, we still have to be vigilant that it stays manageable and doesn't become bad debt. So how do we fix it?

Well, first off - have an emergency fund. A recent study showed that many Americans wouldn't have $500 available to cover a sudden emergency - one of many reasons people take on debt. So yes, make your emergency fund, and have a budget that includes replenishing your emergency fund and any other savings goals for major purchases. When you think about financing related to a purchase, ask yourself if it's truly a need or a want. If it's a want, don't do it! Instead, make a plan in your budget to put money towards purchasing that want. It could be that in the process of saving, you find that you either don't really care about the product or service or that you can find a better deal.

There tends to be two approaches to paying off debt: the snowball and the avalanche. The snowball method encourages you to start by paying off the smallest balance first, then the next smallest, then the next smallest, and so on - like a snowball! The avalanche method encourages you to start by paying off the balance with the highest interest rate, then the one with the next highest, and so on. Either way, they encourage you to pay the minimum on all of your debts and focus additional money on one debt in particular. Which one you choose is down to preference.

Other than that: 0% is the best. Seriously, if you can finance something at that, take it, and just pay back at the normal rate. T-mobile offers a payment plan for hardware at 0% interest - take it! Do balance transfers to keep your credit card payments at 0%! Just protect that 0% interest rate at all costs fam.

Now, I do want to acknowledge the socio-cultural context surrounding debt. Yes, studies show that here in the US, being African-American can have a negative impact when you seek financing, in terms of whether you get financing at all as well as the terms of said financing. Yes, African-Americans, and particularly African-American women, are underpaid compared to white people and white men, and are much more likely to be engaged in lower-paying jobs, particularly those that are in danger of being automated and/or outsourced. Yes, studies have shown that for descendants of slaves in the U.S., due to an income disparity that goes back to slavery, we often lack the generational wealth that can be used to alleviate the need to go into debt in the first place. Yes, here in the U.S., despite our $1.2 trillion buying power, lynching, convict leasing, and mass incarceration has robbed what is probably hundreds of millions of dollars of buying power and wealth over the years. I say these things not to excuse people - we're all individuals responsible for our choices and the resulting consequences. But, I do want to acknowledge that those choices aren't made in a vacuum, and instead are shaped by the surrounding culture and society. But that's a discussion for a different post...

So what are your thought about debt? What's your plan to pay it off? Any success stories you want to share?