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Debt management strategy involves prioritizing

Pennsylvania residents might be interested to learn about some debt management strategies that can be used for long-term financial health. After gaining extra funds that could be used to pay off debts, many households would be eager to pay down their mortgage. According to some financial experts, however, a mortgage normally falls into the category of 'good debts" and should be paid off last.

A good debt is a debt that has a relatively low interest rate compared to other 'bad debts" like high-interest credit cards. Because of their low interest rates, good debts like mortgages will only accrue a small amount of interest while the debtor continues to make the minimum monthly payment. Successful debt management may involve spending extra funds that are acquired on a solid financial investment that can earn more money each year than the added interest on a mortgage.

Bad debts like credit cards should be paid down before any other financial obligations are addressed. After the bad debts are taken care of, a debtor can move on to 'OK debts" such as student loans and car loans. These debts may have a lower interest rate than a credit card, and they are not considered 'bad" because they are generally used to increase the debtor's earning potential.

Not every household has extra cash to pay down bad debts, and sometimes even making the minimum monthly payments becomes an overwhelming financial burden. Individuals who are struggling with insurmountable financial obligations may wish to speak with a bankruptcy attorney about available forms of debt relief. In some cases, a debtor's situation may be improved by taking advantage of the protections provided by bankruptcy.

Source: The Motley Fool, "Debt Management 101: The Good, the Bad, and the Ugly", Matthew Frankel, October 12, 2014

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