1911: Ask Farnoosh: How to Crush Your Debt (Encore)

What It Covers

Farnoosh Torabi addresses debt relief strategies as Americans carry over $17.6 trillion in debt, answering questions about credit card balances, student loans, consolidation options, and when to pause investing to prioritize debt payoff.

Key Questions Answered

• •Emergency Fund Priority: Build three months bare bones expenses first, then split contributions 70% to high-interest debt and 30% to continued savings. Reassess every three to six months based on expense changes and interest rate shifts to optimize debt payoff strategy.
• •Debt Payoff Methods: Use avalanche method to pay highest interest debt first for maximum savings, or snowball method to pay smallest balance first for psychological momentum. Consolidate with 0% balance transfer cards for twelve to eighteen months or fixed-rate personal loans for predictable payoff timelines.
• •HELOC Caution: Home equity lines of credit currently average 8-9% rates, making them unsuitable for refinancing student loans at 4-6%. HELOCs risk homeownership if payments are missed, while federal student loans offer income-driven repayment and forgiveness protections that private refinancing eliminates.
• •Car Loan Strategy: Put down 20% minimum to avoid underwater loans and secure better rates. Shop loans before visiting dealerships, targeting mid-5% for new cars or under 8% for used. Keep total car expenses including insurance and maintenance under 15% of take-home pay.