Debt Management

Debt Management

Are you looking for a way or way on how to manage your debt?  For sure, you are because you know very well that once you are in a bad financial situation, everything about you will go down the drain- you will have a bad credit history, your credit rating will significantly diminish, lenders will stay away from you and you can’t buy the things that you need and even the things that you want.  However, with a proper debt management, you would be able to survive to raging seas of debt.

Debt is not really bad, if you really want to know.  With debt, you can get what you need and what you want.  Debt becomes bad only if you don’t have proper debt management.  One example of “debt mismanagement” is when you borrow money, for example, through loans and you can’t pay your mortgage or dues.  Debt mismanagement is also defined as borrowing more than your capacity to pay and it can also mean buying something through loans that you don’t need.  If you are not reducing debt faster than you’re accumulating it, it could mean total disaster for you.

One tip that you should always put in your mind when it comes to debt is: “How much is too much debt for you?”  This is where “debt-to-total-income” ratio comes in.  As have mentioned above, if you spend more than what you earn, if you borrow money more than your capacity to pay (net income), then, you are at a financial loss already.  Technically, 36 percent is acceptable.  But, if it is around 40 percent or more than that, you need to learn how to manage your debt.  You should learn practical and effective debt management.  

Here are some tips for effective management of your debt:

  1. Don’t spend more than what you earn each month.
  2. Don’t skip payments on some of your loans or mortgages thinking that by doing so, you can pay other bills.
  3. Always be on the alert to know what you need and what you want.  Remember, your “want” is different from your “need”.  
  4. Don’t make minimum payments on your credit cards.  Pay the exact amount of your debt and don’t max out on your credit card limits.
  5. In connection with #4, just because you have a credit card doesn’t mean you are the “king of the world”.  Remember, what you purchased through your credit card, you still need to pay for them.
  6. Don’t be tempted by “sales” or “big discounts” that you see at malls and department stores.  People make mistakes of buying just because items are up for “SALE” even if they don’t need them.
  7. Most important, create a realistic budget and STRICTLY follow it.
  8. Do have a debt-reduction plan.
  9. Adjust your lifestyle. For example, if you always eat a fast-food restaurant, try to cook at home.  If you can’t cook, learn how. Simple.
  10. In relation to #9, some people are adapting frugal living, the “art” of living better for less.  Some may call it “minimalism”.  Every tip that you see here all lead to frugal living.

 

There are still a lot of tips on how to do effect debt management and these are just some of the basic tips in order for you not to be swimming in debt.  Remember, being rich is not just about having a lot of money but it is also on how you spend your money wisely & how to manage your debt.