As an adult, money management is a part of life. As soon as car payments and mortgages come into play, debt management will be, too. The trick to staying afloat despite tough economic times, however, is not necessarily to avoid debt, but to go into it prepared.
- Understand the situation:Keeping track of spending habits, debt burdens and credit reports is the first step to becoming debt-free. Before any plans to pay down debt, there should be a clear understanding of how money is being spent. A few hours devoted to going through bills, bank statements and credit reports can indicate the best ways to cut spending while laying the ground work for a solid budget.
- Plan – and follow – a budget for repayment: Before the credit card even comes out of the wallet, there should be a plan for its repayment. This doesn’t always have to mean paying off the full balance within the same month of a purchase, but it does mean that there should be a clear game plan about how each purchase will be paid back and that game plan should be followed as best as possible.
- Don’t charge short-term purchases: The idea of a Caribbean cruise may sound inviting, now, and available credit may make the purchase sound all the more appealing, but paying off the cruise five years from now probably won’t. Instead, all purchases made using credit should have a lifespan that exceeds the payment plan. Purchases such as vehicles, homes or renovations all have the ability to provide a return on the credit investment — a cheeseburger purchased five years ago doesn’t.
- Pay down the highest balances first: If debt is already an issue, don’t try to tackle each balance all at once. Doing so can leave borrowers stretched too thin to make it from paycheck to paycheck creating temptation to charge groceries or other short-term expenses. To pay off debt as quickly as possible, address debts with the highest interest rate first to avoid the excess fees.
- Consolidate debt: When the piles of bills become too much to manage, the best option may be to consolidate debt if the interest rate is lower. This doesn’t necessarily mean sweeping them all into one pile, though. Before consolidation, it is important to calculate interest rates plus transfer fees divided by the estimated repayment time. If this option proves to be cheaper than the alternative, debt consolidation is recommended.
According to USNews, approximately 70 percent of Americans are in debt. But, just because it is common does not make it ideal. If you are struggling to get out of debt, there is help available. To learn more about debt management, contact TFC Credit Services today. Your financial future depends on it.