It’s another four-letter-word that we love to hate, and even though it was invented as a way to help us out of financial troubles, it has become the leading cause of most of our money woes today. Debt is everywhere; it is a normal part of every adult’s life; however, some people are able to manage it better than others and for them, it does not cause chaos or wreak havoc on their lives. The key to managing debt lies in knowing it inside out – there are some debts that are good for you and some that are so bad they mustn’t be touched with a bargepole; there are some debts that must be repaid immediately and some that must not be incurred at all; and there are some debts that provide you with a bright future and others that end up ruining the life you’ve built for yourself. In short, debt is complicated unless you take the time to understand it completely, and to that end, here are a few facts and tips to help you out:
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A debt (or mortgage) on your home is good because your home accrues in value as the years go by. However, if there comes a time when your outstanding debt is more than the value of your home (it happens in some markets), then it’s time to think of a short sale to salvage what you can.
A student loan is good because it earns you a college education. However, unless you’re able to find a good job (or take advantage of a loan forgiveness job program) and repay your debt, it is going to hang over your head for the rest of your life.
A debt on your car is also ok if you haven’t spent thousands of dollars to buy a fuel-guzzling monstrosity – you don’t want to have to shell out for gallons of fuel every month even as you’re trying to pay off your loan.
Credit card debt is bad, unless you pay it off in full every month. Remember, it is important to pay your bill IN FULL every month because if you don’t, interest accrues at a very high rate and you end up paying much, much more than you’ve borrowed. The key to using credit cards wisely is to use them regularly so that you incur debt, and then pay them off in full (not just the minimum balance) so that your credit scores soar and your credit history looks good.
Avoid using your credit card for frivolous purchases when you know you cannot pay off your bill that month.
Borrowing cash using your credit card is a definite no-no since you have to pay an exorbitant interest.
Pay all your bills on time
the longer you delay, the higher the interest you’re charged. If you’re the forgetful kind, set up an automatic debit facility with your bank so that your debts are paid in full every month with money from your account.
If you have money only to pay off a few debts, finish your credit card debt first or the one with the highest interest on it. This minimizes the amount you have to pay back.
Don’t borrow money to pay off a debt without thinking it through
in some cases, this is a good idea if the second debt is cheaper (lower interest rate) than the first.
And finally, before you turn over your debts to a professional debt management company, remember that this move is going to cost you money too. So if you haven’t prevented debt from piling up, at least try and make sense of it and deal with your creditors on your own.
