7 Practical Debt Management Tips
Debt Management Tips To Avoid The Money Trap
Debt, when used properly and for the right expenses, can help you gain financial ground, but when abused and used inappropriately could hold you captive in a financial trap. While your debts are still under control, manage your debts by making sure you do not incur new debt and find ways to cut back on the cost of borrowing. Here are some debt management tips that may help you achieve these objectives.
Debt Management Tips To Help You Eschew Additional Debt
Being buried under a mound of debt is enough and incurring new debts to add to this mound will not help you get out of the money pit so follow these debt management tips to help you put money in rather than out of your pocket and get out of debt’s way.
1. Budget. Many people avoid this but the more you avoid budgeting, the more you get in debt’s way. Following a budget will guide you to spend less than what you earn.
2. Save For The Rainy Day. In life, anything can happen, including the unfortunate and the unexpected. So make it a point to squirrel away an emergency fund equivalent to six months of your monthly income. When an emergency crops up, such as when you have been laid off, you have come prepared, sparing you from the need to borrow money, while looking for a new job.
3. Save Up For Big-Ticket Purchases. Following a budget and saving up for the rainy does not necessarily mean that you cannot buy big-ticket items. Actually, that is the very essence of budgeting: planning your purchases including a car or that much-deserved out-of-the-country vacation. This will encourage you to open a savings account for such items and earn interest instead of paying for interest if you buy these things on credit.
4. Do Not Borrow To Pay For Purchases That Depreciate In Value. Learn to identify good debt from bad debt. Good debts put money in your pocket and are items that will appreciate in value, such as a business, rental properties and other investments. Avoid incurring debt to buy items that lose value overtime such as a car, appliances, sailboat (unless it is for business), etc.
Debt Management Tips To Cut Back Cost of Borrowing
Strive to pay off your credit card balance in full, but while you still cannot, consider these debt management tips to reduce interest rates.
1. Opt For Companies Offering Lower Interest Rates. Shop around for credit card and loan companies that offer the lowest interest rates and consider opening an account and transferring your debts to this new account. Beware of low rates that will eventually expire. Make sure that you have paid the debt in full before the low rates lose validity, otherwise, transfer your balance to another company also offering low rates.
2. Take Care of Your Credit Score. A good credit score will merit you better interest rates so make it a point to pay on time. Also take the time to check your credit record and report any erroneous reports logged on your file that could mar your score.
3. Opt Out Of Insurance Offered By Credit Cards and Loan Companies. Although the life insurance offered by credit card and loan companies can help your family avoid financial difficulties in case you pass away, you can get a better deal and possibly save a hundred bucks monthly by opening a separate term life insurance coverage for your entire financial obligations. If you already have this, you can drop the additional insurance on your debts.