Originally created 02/05/01

Planning is key for debt relief

"Neither a borrower nor a lender be" is somewhat dated but still sound advice - especially the part about borrowing.

Naturally, it's best to avoid loans and credit completely. But debt for adults just beginning to acquire assets is common, and in some cases, unavoidable.

That doesn't mean it has to become a lingering, downward spiraling drain on your income.

Financial planners agree there are few "acceptable" forms of debt, a home mortgage being one. Mortgage payments, over time, build equity in an appreciable asset.

Paying money on credit cards does not.

Johnny Hewett, owner of Padgett Financial Services, advocates whittling down massive credit card debt to an acceptable level by allocating as much as you can afford to pay down the account balance.

"If I pay the minimum they want me to pay (on credit cards) the rest of my life, I will never pay that debt off," he said.

He says the routine debts associated with the basics of daily living should amount to no more than 70 percent of one's income.

Consumer Credit Counseling Services of Augusta Inc. offers a number of services to those struggling with debt.

First, a counselor has the consumer fill out a form listing all sources of income, fixed expenses, flexible expenses and outstanding debts. Then consumer and counselor discuss strategies designed to end the debt cycle.

In the extreme cases, where the client is in danger of becoming delinquent on debt payments, the nonprofit service will write letters to creditors on behalf of the client that request future finance charges be reduced or eliminated.

"During the time you are in this debt management program, you are asked not to assume new credit. If Visa is going to give you a deal, they don't want you doing business with Master Card at full charges," said Nicki Arant, director of education at Consumer Credit.

Transferring the balance of credit card debt onto another card with a lower interest rate also can be a smart move, providing you're serious about eliminating the debt. Continually rotating debt and making new charges is not a solution.

Once existing debt is canceled, credit cards should be paid off each month in full.

In most cases, the faster a loan is paid off the better. Take for example a $20,000 student loan at 8 percent interest. Making a minimum payment of $250 a month will result in $10,000 in interest charges after 10 years of payments.

But if you were to pay an additional $100 a month, you could pay off the debt in five and a half years and reduce your interest charges by $4,800.

Loan and credit terms can be tricky, so read the fine print pertaining to provisions such as fixed and variable rates when applying.

When buying a car or home, shop extensively to find the lowest loan rates.

Automobile buyers should know going in the base cost of the vehicle and what types of coverage and add-ons are available. Certain forms of coverage and warranties might add unnecessarily to the amount of the loan. It helps to have an idea of how long you wish to keep the vehicle before upgrading.

Those in the market for a home should select a house in a growing part of town and be prepared to stay in the area for at least five years to see a return on their investment.

Younger people especially should avoid being too ambitious in their first home purchase. Determine how much space you need, and how much would be wasted space.

In most cases, discount point structures cost more in the long-run than fixed-rate interests.

Reach Eric Williamson at (706) 828-3904.


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