Debt can quickly become an overwhelming burden with seemingly no hope of escape. However, it may be possible to recover from a mountain of debt with the right plan. People in Ohio who are suffering from excessive bills should first understand the type of debt they have, then prioritize which ones should be paid off first.
The two broad categories of debt are secured and unsecured according to The Balance. Unsecured debt has no collateral linked to it. Educational loans, credit cards and medical expenses are examples of unsecured debt. Failure to repay these bills could result in reports to the credit bureau, which greatly damages the borrower’s credit score. A low score may make it more difficult to obtain a mortgage or other loan in the future. Another possible consequences is direct withdrawal from the borrower’s salary. This is called wage garnishment. Secured debt, on the other hand, is a loan connected to a particular object, such as a vehicle or a house. The object becomes collateral for the loan, meaning it could be taken away if payments become severely delinquent.
An effective pay-off plan involves prioritizing each debt. According to Smart Asset, it may be wise to pay off smaller loans first. Repaying an entire account quickly is encouraging, because it allows the borrower to see progress rather than endless payments on accounts that never seem to get smaller. Another important consideration is paying off bad debt. Borrowers should focus first on unsecured loans that are not adding value, such as credit cards. Lastly, loans with higher interest rates should be paid off more aggressively. This will likely save significant money in the long run.