As we continue our back to basics series, we’re going to talk about debt. We interview the founder of the blog, Dear Debt, We Need to Break Up.

Melanie Lockert of Dear Debt who paid off $81,000 in student loan debt joins us to discuss all things debt related.

What is APR?

When you borrow money, whether you are using a credit card or taking out a mortgage, the amount you borrow is not the amount you will have to pay back (unless you pay off your credit cards in full every single month for life).

You will also pay interest, this is the cost to borrow money. The interest you pay on a credit card is APR, the annual percentage rate. The average APR for a credit card is about 16%. Credit cards have a set APR so your credit score doesn’t impact the rate you pay.

Not all APR is the same though. There may be one for balances you carry, it may increase if you miss a payment, taking out a cash advance against the card may have a different APR than the balance APR and there is no grace period on a cash advance. It starts accruing the moment you take the cash.

Nerd Wallet has full reviews of credit cards and lays out all the terms. Their site is easier to read than credit card fine print so if you are looking for a credit card, do your research there.

If you have a credit card with an annual fee (not necessarily a bad thing if the cost of the perks you use add up to more than the fee but there are plenty of good rewards cards that don’t have fees) you may be able to get it waived if you are in good standing.

It doesn’t hurt to call and ask. If your fee is because the card is a secured card you were using to build credit, ask if you can upgrade to a non-fee card without closing the account (closing accounts hurts your credit score, more on this below).

If you have a premium rewards card with a fee and the company won’t waive it, you may be able to downgrade to a card with no annual fee, a Chase Sapphire Preferred to a Chase Sapphire for example without closing the account.

Paying Off Debt is an Emergency

You must have a plan to pay off debt, just throwing money pell mell isn’t efficient. There are two methods to pay off debt, snowballing and stacking. We wrote an article on this with lots of details and the pros and cons of each.

The short version is that snowballing means paying off the debts in order of lowest to highest dollar amount. Stacking is paying them off in order of highest to lowest interest rates. Strictly from a money saving standpoint, stacking makes the most sense because it saves more on interest.

Melanie offers two more methods, pay off the debt that pisses you off the most, maybe a loan you took out with an ex or the loan that keeps you up at night.

Your Credit Score

Your credit score is made up of six factors; payment history, utilization, derogatory marks, the length of credit history, total accounts, and credit inquires. We wrote a detailed article on credit scores. 

The best possible credit score is an 850 but it’s almost mythical and there is no reason to chase it. If you have a score above 760, that is good enough to get you the best interest rates on loans or to be approved to rent an apartment. If you’re at 760, use your personal finance energy on something else like investing rather than tinkering with your score.

If you have poor or no credit, you can fix and build it. The easiest way to do it is to take out a cre...