5 principles for debt management
Debt Management: 5 Principles to Help You Take Control of Your Debt!
Introduction
It’s been getting harder and harder to get credit these days, whether you’re looking for a car loan, a credit card, or even a home loan. Therefore, managing your debt and having a good credit score is very important. Lenders no longer give loans with no down payment and no interest. Credit card offers these days are reserved for those with good or excellent credit.
BusinessWeek says that total household debt in the US was more than 100% of our annual disposable income last year. The average person has more than $8,000 in credit card debt.
The bottom line is that our personal debt is growing at an alarming rate. You can now charge your fast-food meals at many restaurants, paying interest for years on something you ate in one sitting. Many people have taken steps to address their debt problems, including debt consolidation for cards with lower interest rates, home equity loans, or, at worst, the dreaded “B” word, bankruptcy.
5 principles of debt management
1. Create an accurate assessment of your debt situation.
Make a list, a chart, or whatever you feel most comfortable with, of all your debts. Be sure to include amounts, interest rates, and due dates (especially on any type of ## day interest-free loan). Be sure to note any old accounts you have “lying around,” like the department store credit account you opened to get the 15% discount.
Now you can get a free credit report online. You should make sure you have a credit report and FICO score from each of the 3 national credit bureaus: Experian, Equifax, and TransUnion. The FTC recommends monitoring your CREDIT REPORT activity AT ALL 3 BUREAU. Under a new federal law, you are entitled to a free copy of your credit report once every 12 months from each of the three national consumer reporting companies. AnnualCreditReport.com allows you to request a free disclosure of your credit file (ie, a credit report) once every 12 months from each of the nationwide consumer credit reporting companies. This free credit report will not include your credit score, but it does provide you with a consolidated list of your debts, a record of your credit history requests, and a summary of your rights under the Fair Credit Reporting Act.
Once you’ve gotten your free credit report, you also need to get your credit score. You can get your credit score, along with daily credit monitoring from 3 bureaus and other great services from FreeCreditScore.com.
2. Make a budget and stick to it!
Budgeting helps keep your debt from increasing as you try to pay it off. Be specific and detailed in your budget. Except for emergencies, you should only spend what is accounted for in your budget. Some people have found it helpful to keep a 30-day record of their spending. Take with you a small notebook, or some cards, and write down everything you spend each day. You’re probably surprised at how much money you spend on things you want and don’t really need. The smallest things, like that $3 cup of coffee every day, can slowly eat away at your finances. This will help you avoid going deeper into debt. Your budget should define how much money you will send to each of your creditors each month and how much you need for bills and how much is left for discretionary spending. Try to limit your discretionary spending to things you can buy with “pocket cash.” This may be the hardest thing you’ve ever done, but you won’t go deeper into debt if you only spend what you have.
3. Pay debts one by one.
Keep minimum payments on other debts, but choose the debt with the highest interest rate and send additional payments to pay it off. There is a proven psychological benefit to being able to remove a debt from your list.
4. Consider consolidating or restructuring debt and possibly refinancing your home mortgage.
Reduce your credit card debt by 70% through consolidation. With low interest rates, it may also be time to refinance your home loan and lower your monthly payment. You can get free home loan quotes at LowCostLending. When you refinance, make sure your closing costs and other fees don’t exceed the savings on your monthly payment. Another option is to get a home equity loan. Home equity loans are good because they allow you to deduct the interest on your income taxes. However, remember that new credit is not a license to incur new or more debt. Once you’ve transferred a balance by consolidating or refinancing, don’t add any more fees to the old account. If you have a lot of open accounts, you may want to close some of them, but you don’t always necessarily have to cancel the old account. Having a good payment history with a few existing accounts may be better for your credit history than many canceled and new accounts.
5. If necessary, get help.
You can choose a credit counseling service or a debt counseling and help service to help you with every step of your debt solution. Credit counselors can add responsibility to your debt solution and also serve as a source of encouragement. They are used to dealing with people with bad credit or bad credit, and can help you create a personalized debt solution. They can suggest money lenders who might be more willing to make a loan to someone with a lower credit rating. Once you begin to reduce your debts without incurring new ones, you will begin to see your credit score increase.
By following these simple principles, you should be able to control your debt, reduce it, and eventually eliminate it.