Debt is like a pool of quicksand. The more we struggle to extricate ourselves from it, the more it seems to cripple our finances. Interest rates seem to grow exponentially, making it difficult to pay your bills let alone pare down your debt obligation. Often times this leads to people seeking help from a credit counselor, yet this may lead to an overall downgrade of your credit score.
Rather than plummet your credit even further, it may be wise to consider these 5 following tips for debt management. Not only will they help get your credit under control, but create good habits so that you avoid falling into the debt in the future.
1. Reduce Your Expenses
Debt is typically the product of a person living beyond their means. Formulate a list of your expenditures and determine which items are luxuries and which are vital. Although saving money on air conditioning or cooking cheaper meals can help, usually it’s the larger purchases that compound your debt problem. Try purchasing used items or more inexpensive alternatives to your daily habits. For example, instead of buying a monthly satellite TV package, watch your favorite programs online for free.
2. Get a Lower Interest Rate
Credit cards generally fleece customers with interest rates ranging from twenty to thirty percent. Even balance transfer rates will tack on a ten percent fee, turning an attractive five percent rate into a fifteen percent rate paid mostly up front. Consolidating your high interest debts into a single, low interest loan is an excellent to both simplify your obligation and lower your monthly interest payment. For those who don’t qualify for loan consolidation, a tax-deductible home equity loan may provide the relief you need.
3. Pay More Than the Minimum
The less you pay, the more you pay. While money may be tight, putting down only the minimum payment will result in you paying more in interest than the original cost of the loan. For example, a $1000 loan with a minimum payment of $25 will on average take 13 years to pay off in full. In addition, during that time the interest paid on that loan will range from $1000 to $1500 depending on the APR.
4. Use Cash
If you are having difficulty managing your existing credit, it goes without saying that you should remove credit from your life. Do not apply for new cards, regardless of what type of deal they are offering. Interest free deals will either force you to spend more than you intended or apply the interest if you fail to pay off the card in a certain time frame. Pay for everything with cash. If you don’t have the cash on hand to purchase something, it’s beyond your means. Make a clean break.
5. Alter Your Payment Times
Credit card and other late fees are a huge factor in the rising debt crisis. A major reason individuals fall victim to these fees is due to an arbitrary payment time. In many instances a person will receive their paycheck days after their bills are due, resulting in a late payment and an accumulation of fees. Try contacting the billing party directly and negotiate a due date that comes after your paycheck. Otherwise you may need to set aside just enough money to meet the minimum payment, followed by a larger payment once your paycheck has arrived.
Article by Jess Hampers of credit report. Jess writes about a variety of finance related topics including credit score tips and information.
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