The Ultimate Guide to Managing Your Debt

The Ultimate Guide to Managing Your Debt

Debt is something that almost everyone will have to deal with at one point in their lives. This doesn’t seem to make it easier to talk about, however, and many people feel like there’s no way out. This is not the case and there are ways you can avoid debt, and strategies to help you get back above water. The key is to think positively and take action. You need to have a more proactive attitude towards your debt, and seek professional advice. Here is a guide to the types of financial difficulty people face and how to finally manage your debt.

You are not alone

More than 189 million consumers have credit cards and an average of four individual cards. This means a dangerous potential for credit card debt and in fact, on average each household with a credit card is burdened with over $8,000 in debt. If you add consumer debt on top of that, so you’re talking about mortgages, auto loans, and student loans, the national total is a staggering $13.8 trillion dollars

Unfortunately, financing is necessary for many citizens in order to pay for their homes, cars, education, and healthcare. It’s a typical problem to have consumer debt of some kind. There’s been consistent growth in these types of debt. Taking out a loan is not necessarily a bad thing, the trick is learning how to manage it. In fact, there are both good and bad types of debt.

Good debt vs. bad debt

Good debt is defined by three main factors, what you use it to buy, whether you can afford repayments and if you have a plan to repay it. Mortgages are an example of good debt, after all everyone needs a roof over their head and a house is an investment for the future. It’s uncommon to buy a home outright without financing. There are different ways you can manage your mortgage as well, for more information consult

College loans are another example of good debt. The price of university education is continuing to rise, and many people need financing in order to manage payments. Again, this is an investment, and if you have a college degree, you are more likely to earn a higher salary enabling you to manage your debt. Learn more about student aid and repayments.

Bad debt, on the other hand, is generally related to buying unnecessary material things such as cars or clothes, small business debt, or building credit card debt. Without a repayment plan, bad debt can easily get out of hand and you could be worse off financially than before you borrowed the money. The key is learning to avoid debt where possible, and having a clear repayment strategy if not.

How to avoid debt

The best thing you can do is learn how to avoid debt in the first place. It’s a good idea to consult with a financial advisor or money-saving expert. Here are some strategies to help you avoid debt. 

  • Make a realistic budget

This is the best way to avoid debt. It is a lot easier said than done, however. It’s very easy to forget to account for extra costs, and often people struggle to make a realistic budget. 

  • Stick to it

The other problem is sticking to your budget. It’s a slippery slope, but it’s tempting to go over once in a while and think it’ll work itself out. Don’t worry, nowadays technology can provide a solution, there are several budgeting apps that can help you manage all your finances on a single device or smartphone. 

  • Control card spending

Some people go by the rule, if you don’t have the cash to pay for it, don’t buy it. If you do use a credit card, if you can’t afford the monthly payments then you’re spending too much.

  • Don’t avoid communication

If you have a mortgage or other forms of financing, speak to your lender if you have any doubts or difficulties. Perhaps there will be a different solution more suited to your situation. Don’t just panic and think you can’t pay it. Find a more manageable option for you, and stick to it.

Nevertheless, at some point in everybody’s lives, debt is unavoidable. There are several strategies that can help you manage your debt, and finally be able to deal with it.

How to deal with your debt

The first thing to remember is never to be ashamed to ask for help. Many people need financing. There are different ways you can go about seeking professional advice. If you have a particular problem with your mortgage payments, for example, you could speak to an advisor. You could also speak to a nonprofit credit counseling agency, where trained credit counselors promote financially responsible behavior and deliver a free and informative service. 

A professional advisor will be able to recommend the best strategy for you to manage your debt. Here are four examples of strategies to help you deal with your debt.

  1. Debt management program

Typically, in this case, a nonprofit credit counseling agency will prepare a debt management program for you to pay off your debt by reducing the interest rates and making your repayments more affordable. 

  1. Debt settlement

It’s possible to settle a debt in some cases with a lump-sum payment. Usually, the creditor will reduce the debt by 25-30% in order to receive the money upfront. 

  1. Debt consolidation

This makes your debts more manageable by combining them into one payment. This is usually typical of things like your mortgage and life insurance.

  1. Bankruptcy

By declaring bankruptcy officially, the government is able to repossess your assets in order to pay off outstanding debts. This is not necessarily as scary is it sounds, and there are plans put in place in order to help you keep some assets and manage repayments. 

It’s always possible to improve your financial situation, no matter how it looks. Seek professional advice and figure out which option is best for you. 

Image credits: pixabay

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