The Ultimate Guide To Debt Management
No matter how much debt you owe, be it a lot or be it a little, its worth investing some time in a proper debt management plan that will keep you from sinking financially, and help you get your head above the water if your already drowning in debt. The following debt management solutions will accelerate your overall financial well being, and allow you to enjoy life knowing your debt is being well managed.
Debt Management Tips That They Don't Teach You In School
This list could literally be endless when it comes to tips and best practices for managing your debt. We've listed the best practices that have proven to be the most effective for managing your debt below. Consider this your starting point to your healthy financial future!
Debt tips and helpful tools to aid your finances
While these may sound so simple, keep in mind that simple is almost always the most effective. In fact, one of the barriers to proper debt management is over-complicating the process.
1. Know Your Numbers
When was the last time you sat down and actually wrote out your minimum payments due, current balances, and prioritized a plan to pay off your bad debt? Statistically, the majority of you reading this will not know the answer to that question. The thought of sitting down and staring your outstanding balances straight in the face might make you want to puke. But there is no way around it, if you don't know who you owe and how much you owe them, your plan has already failed.
Create a list of all your debt, the minimum payments, due dates and total outstanding balances. This will give you a visual on where you have the most opportunity to make some progress, and will motivate you on your success as you track your improvements.
Free helpful budgeting tools
Rather than spending extra time to begin and organize your budget, you can be much more efficient and productive when using helpful resources such as Personal Capital. Personal Capital provides a variety of free financial tools that will aid you in keeping a close tab on your finances.
2. Prioritize Your Debts
Some debts are considered to be a higher priority than others. Paying your monthly mortgage payment should be a priority over paying off your credit card. Generally speaking, collateralized debt should be your first priority, followed by unsecured debt. Collateralized debt refers to debt that is secured by something of value, like a home or a car.
By making sure you pay your mortgage on time every month, you avoid potential conflicts and bad credit marks on your credit report. A late mortgage payment reflects a much more serious issue than a late credit card payment when it comes to determining your overall credit score.
Empower Finance is an app that aggregates all your financial accounts together to make it all one easy to understand chart. They send you intelligent notifications informing you if your bill has suddenly increased, or if you have missed a payment. If you have a hard time remembering your debt payments, Empower Finance has got the fix for you.
3. Keep your credit balances below 50% of the credit limits
Its easy to make impulse purchases when you know you have a $5,000 credit card and have a few thousand available to use. Because hey...you'll pay it off quickly...right?
The higher your credit balance goes above 50% of your overall credit limit, the more it impacts your credit score negatively. This signals to finance companies that you are a high spender. If you keep a credit card balance above 50%, this suggests that you like to spend, but dont have enough income to pay your balances down, a sign that impacts your credit score negatively.
Tally, a credit card management app, makes it easy for you to make all of your credit card payments on time and with one simple payment. Their credit card maintenance solution aggregates all your card payments together and pays it all at once for you.
They then collect one payment from you at a better rate than your high interest rate cards, saving you time and money. Talley is simply the middleman between you and your credit card companies. You pay them one payment, and they disperse the payments to all your cards for you.
Tally allows you to keep track of your credit card balances and ensure you keep them below that 50% threshold, resulting in a healthy financial track record.
4. Consider a debt consolidation loan
If you're in over your head in credit card debt, chances are your overall aggregate payment amounts are very high, not to mention the high interest rates that are keeping you from making any progress. Making minimum payments alone will ensure you stay in debt for life.
By getting a debt consolidation loan, you are able to take out one loan with a much lower interest rate and pay off all your credit cards, thus transferring the balances of them all into one loan. This makes for an overall lower monthly payment, and allows you to make more progress on your debt consolidation plan.
5. Keep an emergency fund
Emergencies are going to happen, and relying on your credit cards to pay for those emergencies is a plan for failure. Establishing an emergency fund of at least $500 - $1,000 allows you to comfortably make payments on your debt, and have money available should the unexpected happen.
This keeps you from using up all that credit that you just worked so hard paying off when your car engine dies and you need a tune up costing you an arm and a leg. A good habit for you spenders out there, is to set the emergency fund in a seperate bank account than your regular day to day spending accounts. This helps keep from the temptation to use up your emergency fund for buying that next "great" deal / impulse buy.