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'Debt' seems a very negative word. But in today's environment, it is a fact of life. It is difficult to live completely within your income and sooner or later, you incur debt. It could be a mortgage for purchasing a home, a student loan for completing your education, or simply a credit card to smoothen financial transactions. It's important to understand that debt by itself is not bad. What is bad is letting debt get out of control.
If managed properly, debt can be an asset to you. Here are some guidelines for managing debt: · Do not hesitate to take a loan if it is going to earn or save you money in the long run. For example, if you are paying steep rents, it makes sense to take a mortgage to purchase a home. You are likely to save money in the long run with this loan. Similarly, a student loan is also an investment as it increases your potential income after you complete education. · Avoid incurring debt for purchasing consumer goods, such as electronic items and clothes as these have short lives and very little resale value. It is better to purchase these items using cash as you are more likely to stay within your income if you do so. · Maintain a log for tracking all your debts. This helps you stay in control of your debt as you are always aware of the total debt you owe. · Making monthly payments on time is the key to managing debt. This way, you avoid steep late payment charges. Late payments reflect badly on your credit score. If required, set reminders so that you do not forget the due dates of different bills. If you know in advance that your payment is going to be late for some reason, inform your creditor to explain the situation. Many creditors do not apply late charges if they have been notified in advance. · Pay off your credit card bills in full each month to avoid high interest rate charges. If you don't have sufficient money to make your monthly payments in full, pay off at least the minimum amounts on each bill. If cannot afford the minimum payments also, contact your creditor and try to workout a repayment plan. If you are going through a financially stressful period because of a medical emergency, sudden unemployment, or divorce, creditors are often willing to take off some pressure from you. · Maintain records of your talks with creditors, including date and time and the name of the person you spoke with. This will help you in disputing a non-payment or Default notice later, if required. · Consolidate your debts into a single manageable debt by taking a consolidation loan. When you consolidate debt, you need to make a single monthly payment that is lower than the sum of the individual payments you made earlier. The interest rate on the consolidated loan is also lower than the average rate on your previous loans. The above guidelines for managing debt will help you stay in control of your debt. However, the best to cut down on debt is to review and control your expenditures. Ideally, your total debt obligations in a month should not be more than 35% of your income. Learn more about credit repair, how to boost your FICO fast and tips to improve your credit rating |
