Vital to anyone's financial health is learning about debt and how debt payment affects one's credit history. Effective money management and financial decisions are critical to ensure that when you borrow money, you pay as little money for it as possible. Having a poor credit and debt history drastically impacts the rates you pay to borrow money, whether it be for a car, a house, or cash advances on paychecks.
The tips below can help you more effectively manage your money and
debt, and eventually help you to avoid the high interest paid on
payday loans, cash advances, mortgages and credit cards.
1) Avoid excessive credit card debt
Financial Tips Resources:
SmartMoney offers consumers excellent tips and
resources to help them work toward a
secure
financial future. The FTC provides consumers information about
financial health and credit repair.
Financial experts all agree that credit card debt is among the worst
forms of debt to take on. The interest paid on credit card debt is
very high, typically between 15-20%. Considering that the typical
American consumer holds 7-10,000 dollars of credit card debt at any
given time, Americans are paying a huge price for access to money
they can't afford.
2) Understand what 'good' and 'bad' debt means
Credit cards are only one type of what financial advisors consider
'bad' debt. When assessing what qualifies as 'bad' debt, think about
the kind of debt incurred for quick consumption items. Visits to
restaurants, unplanned vacations, and unneeded household items
qualify as quick consumption items. Unlike 'good' debt, 'bad' debt
involves spending that in no manner contributes to the accumulation
of assets or investments. Mortgages, student loans, and affordable
car loans are typically considered 'good' types of debt to incur.
Impulsive, unplanned and unbudgeted spending should always be
considered 'bad' debt.
3) Pay off all debt considered 'high interest'
Do you know what interest you are paying on the debt that you carry?
Making a list of every debt you carry, then listing the different
interest rates being paid on each is a good way to clarify debt
payment priorities. Once you know which debts are costing you the
most, work to pay off those first. Paying less interest on debt
allows you to spend more money paying down the principle on the debt
owed.
4) Learn how you spend
Understanding where your money goes is critical to understanding
your personal consumption habits. Anyone carrying debt should not
only understand how to manage it, but why it was incurred in the
first place. It is an astounding fact that most people have no idea
where "it all goes".
5) Borrow money wisely
Never borrow money with the intention of only paying 'the minimum'.
Do not assume any debt that you can't afford - in other words, if
you cannot pay off part of the principle and the minimum required
monthly, do not borrow the money.
6) Have cash in the bank
Financial experts agree that every individual should have 3-6 months
of income put aside at any given time. A job loss or illness can be
financially devastating for those who have no savings, causing them
to borrow unwisely, and pay a very high price for doing so.
7) Get professional help
Those who cannot seem to effectively manage money and debt,
regardless of how hard they try, should get help. Spending patterns
can be difficult to break. Financial advisors have many proven tools
and tips to help you learn and change spending behavior.
Understanding how you spend and save money can, literally, save you
hundreds of thousands of dollars over your lifetime. Ensuring that
you borrow money wisely not only affects your credit rating and
quality of life, it greatly affects your ability to borrow in the
future. This can help to build up investments and assets that will
help to ensure that your quality of life continues to improve, even
into and after retirement.
