Debt Management Basics

Take Control and Stop the Cycle of Debt

June 2015

The goal of every debt management plan ought to be to eventually stop paying interest and start earning it instead. It may sound like an unreachable dream to some, but with some basic debt management techniques and a solid debt management plan, you can achieve it.

The reason a lot of people have difficulty getting to the point where they're earning more interest than they pay is not because they lack the determination to succeed. Two of the biggest stumbling blocks to successful debt management are 1) saving too much, and 2) unexpected expenses.

How can saving too much be a problem? It sounds counterintuitive, but consider this: the interest rate you pay on high interest debt is often exponentially higher than the rate you earn in a savings account, certificate of deposit or even many types of investments. When you make larger payments toward your debt instead of contributing to your savings balance, you pay less interest in the long run. And when you pay less interest, you can earn more interest after those debts are paid off because you can save even more than if you had not paid them off. It simply does no good to pile up savings while you continue to pay a lot of interest toward credit cards and the like.

How can you plan for unexpected expenses? While it makes sense to put every dollar you can toward paying off your debts, you should also consider contributing to an emergency or "rainy-day" fund. For example, let’s say you have $1000 or so in a safe place, away from your other funds. If you're suddenly faced with having to pay for a medical bill of $700, for example, you can use your emergency fund instead of using a credit card. This way, your debt management plan won’t be derailed. Once you've replenished your emergency fund and continue to pay off your debt, you'll have even more cash available to save for your other financial goals.

Ally Bank offers a number of financial products suited to your needs, including the No Penalty CD, the Online Savings Account and the Money Market Account—all of which offer competitive interest rates. Learn more by visiting or call live, 24/7 customer care at 877-247-ALLY (2559) today.

Ally Bank, Member FDIC

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