While certainly we would love to follow the advice of William Shakespeare and never be either a borrower or a lender, that's not always possible in today's age of instant gratification. Truly though, it's not a new problem. For ages, people have been borrowing money to fulfill their wants and desires prior to having the money to buy it outright. But with rising interest rates, defaulting loans and unemployment, debt management has become a skill that is highly sought after.
One of the best pieces of advice you can take when it comes to managing your debt is to keep an emergency fund available in case you lose your job or are confronted with an emergency situation. The exact dollar amount varies by individual but it's suggested that you keep three months worth of take home income in the bank where you could access it if needed. This way, if you have amassed debt and tragedy strikes, you can make minimum payments to tide you over until money is coming in again. Additionally, your credit score wont suffer if you have a short term cash flow problem.
Keeping up with your credit report and your credit score is another tip that will help you with your debt management. The credit report is a list of all the people you've ever owed money to and how well you paid them back. Based on that information, you are assigned a score that future lenders, employers or insurance companies will use in deciding whether or not they want to do business with you. Keeping track of that number and taking the steps to keep it high are important to your ability to be able to obtain credit in the future.
Credit card debt is one of the biggest money traps consumers are likely to fall into. They see a big television or high price item and think they need to have it now. They whip out the plastic and charge that item, promising themselves they'll pay for it on their payday. However, the bill comes in, they see the low monthly payment and pay it instead. The interest begins to accrue and before they know it, the television has cost them twice as much as it was originally priced at.
If you use your credit cards, the best scenario is to pay it off at the end of the month. If that's not possible, pay as much over the minimum payment as you can to reduce the number of months you'll be paying off your item. This will cut down on the amount of interest you pay and keep your credit report looking good.
Debt management is truly a fine line. While credit reporting agencies will ding your credit score if you have too little credit, accumulating too much puts a strain on your finances, especially in the case of an emergency or loss of a job. The best rule of thumb to follow is never to put more on your credit cards than you know you can afford to pay off at the end of the month. If an emergency comes, make your minimum payments until the cash flow returns and if possible, always pay more than the minimum.
By following these tips of debt management, you can establish a good credit score and have a credit report you're not afraid to have pulled when you do want to borrow money. And remember, cash is always king, so if possible don't charge or finance the items you want but save instead. You'll save money and gain a peace of mind about your financial future.
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