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However, managing debt doesnt have to be scary or confusing.
There are several straightforward ways to tackle debt that can help you get on a better financial footing.
Also see five myths about debt that nobody should believe.
Create a Budget
Budgeting helps you see where you stand with your finances.
You expenses being too high could be part of why you accumulated debt in the first place.
The first place I would start is to create a budget, Seh said.
But you should at least consider some general debt guidelines to make your finances more manageable.
When thinking about debt, theres some general rules of thumb.
This applies primarily to consumer debt, she explained.
She explained that some clients want to be debt-free.
But quickly trying to pay down all debt could hurt your long-term finances.
That could actually yield a better return, Seh explained.
Having debts like carrying a mortgage can also increase your net worth and help your credit score.
But I would caution them against doing that, Seh said.
If you hold off on retirement savings now, you could miss out on the power of compounding returns.
You want to ensure that you continue to pay yourself first for your future.
Compounding interest is such a powerful tool.
Time is something that you cannot make up, she added.
Figuring out how much to invest for retirement versus how much debt to pay off comes back to budgeting.
Take a home equity line of credit, or HELOC, for instance.
An example of that is taking out a HELOC to pay off credit cards, Seh said.
What youre essentially doing is youre securing your home to pay off unsecured loans.
That can be risky if for some reason you cannot pay back the HELOC loan.
Also, the lower rate can still lead to higher overall costs.
HELOC loans typically have longer terms, like 10 to 15 years.
Aside from HELOCs, debt consolidation loans can sometimes be helpful.
However, as Seh noted, you want to be careful of fees and higher interest rates.
If you cant pay back the retirement fund loan, that becomes a taxable event, Seh said.
So before rushing into these options, consider all the pros and cons.
you better create a plan and stick with it, Seh said.
You have to be disciplined when it comes to paying down the debt.
You have to be patient.
Its not a fix thats going to happen overnight.
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