Managing Your Debt
Let's face it, most of us dream of a debt-free life. In reality, very few people are able to live their life without taking on some form of debt, whether that be a mortgage, line of credit, or
car loan. The secret is to choose debt wisely.
Let's start off by clearing up a common misconception: not all debt is "bad" - in fact, having some debt is not only common, but can be a good thing. "Good" debt is generally defined as debt used to finance things that are expected to appreciate in value, such as mortgaging a home or financing a business. Many financial experts also contend that going into debt to fund education is - in most cases - considered "good" debt, since there should be a return on the investment.
The best thing that you can do in managing your debt is to first, recognize "good" vs. "bad" debt, then minimize that "bad" debt and focus on lowering overall debt. Here are some things that are worth considering, some of which depend of course on your own unique situation:
Budget
Know your financial commitments – all of them – and monitor them. It sounds boring, but you can't work on managing your debt without having a clear idea of where all of your monthly expenses are being allocated.
Monitor your credit situation
Keep on top of your credit rating by checking your credit report. For more information on credit reports, visit the Credit Assistance section of this site, or you can order your credit report now.
Reduce the amount you owe
If you get some extra money, don't blow it all on something extravagant. Consider using at least part of your "found money" to help pay down existing debt. Not only will you reduce the time it takes to pay off debt, but you'll also save interest over the long haul. And yes, "found money" includes a tax return!
Lower monthly payments
Scope out the lowest interest rates possible. You may even consider applying for a line of credit or secure loan if you don't already have one, since these types of loans tend to offer lower interest rates.
Consolidate existing debt
If you have lots of debt, you could well be paying higher interest rates than necessary on at least some of it. Consolidating all debt into one place can help in some cases. The result is that you then make one debt payment each month, which can save you loads of interest over the long term. Bonus: you'll have less payments to keep track of and therefore less of that boring paperwork!
Steer clear of more debt
Resist the urge to go further into debt. One solution is to only buy things for which you can pay cash. If you can't live without your 'plastic', leave your credit card at home and use a debit card. Read the article Tips For Reducing Debt Anxiety for some additional ideas on handling debt.
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