The Secrets of Managing Debt

debt-management

The secret of managing debt is to prevent problems before they become problems. It’s all about avoiding unneeded debt, purchasing what you can, and only going into debt when you can afford it. Loans offer a great escape from financial burdens. They get you the money you need, when you need it to live a normal life. Those loans are useful and a blessing to those that use them wisely.

Learn to use them wisely. Wise debt management has everything to do with not getting yourself into problems with unneeded debt.

Problem Prevention

Be careful with the debt you get into in the first place. If you can’t afford it, don’t do it. The brand new car, 2 story house, or home renovation project can wait.

Save up money for the home renovation project or the car. There’s no shame in purchasing a used car that has a few miles on it. If you can afford to buy in cash instead of by credit, wouldn’t that purchase be more worth it in the end? Your insurance rates go down when

1) you have an older car, and

2) you own it outright. You are not beholden to the whims of your financer who will force you to buy a certain type of insurance.

On top of that, imagine the freedom of not having to pay a monthly fee for the vehicle. It’s yours through and through. It frees you up to get out of your other debts.

These concepts apply to things like home improvement projects as well.

Mortgage Problem Prevention

Most people will never be able to afford their own home off of what they save. Only a select few will be able to pay for the property outright. Most have to use a mortgage if they ever want to own their own house. The key is purchasing one that’s actually within your price range. This means that not only can you afford the monthly payments, but you have money to spare. You should never go into debt for something that will take up the last pennies of your budget. You risk a lot by not leaving part of your monthly income for savings, pleasure, and other bills.

Your mortgage payment should never constitute more than 25-35% of your income. If you’re contemplating purchasing a house that equates to more than this, you’re going to have a higher interest rate and put yourself at risk to not be able to pay it off in the future.

Take out a mortgage for a home you can actually afford (when you can afford it). Don’t risk everything to satisfy a need for a bigger house. You’ll get there eventually, just be careful with how you do it. Credit Card Problem Prevention

A credit card is a wonderful tool for making ends meet, but you should not use it unless you absolutely have to, and even then, be wary of spending more money than you will be able to pay off in the coming weeks. Credit card limits will often exceed what you could afford to pay off in a given month. With limits up in the thousands of dollars, maxing out the card can be a death sentence. The worst part is, you might not even know it’s coming.

It’s so easy to swipe your card here and swipe your card there without thinking of the consequences of your actions. Fifty-dollar purchases add up quickly without you noticing. Prevent a death sentence by carefully monitoring your spending. Know how much is in your account. Know how much you will be earning in the weeks before your bill is due. Know how much of that money is beholden to other debts (like rent and utilities). Being informed of your current financial situation will help you leave your credit card in the wallet.

Make more money

Finally, when you are in so much debt that you fear losing the house, car, or home improvement project, seek out new ways to make more money. Whether you strive for promotions at work, teach others your skill set, or decide to sell excessive things at a garage sale, find a way to make more money. You need a quick way to increase your income so you can afford the luxuries you enjoy. There are a number of ways to make money in this world. Find one that could work for you.

Become a good manager of the debts you take. Credit cards, payday loans, and mortgages all exist so that you can afford to purchase the things you need, when you need them. Just be smart on how you use them so you don’t run into financial trouble later on.

Author Bio:

This post was written by Caitlin Smith a personal finance expert. Caitlin’s favorite topics to right about include budgeting, how to get out of debt and the benefits of short term loans.

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