(ThyBlackMan.com) Debt is no small inconvenience. Your debt can either make your life easier if you have a great credit score, but what about if you have a less than ideal credit score and a scary amount of debt? It can seem difficult to get ahead. All your extra money may be used to pay off a bill instead of into your savings account for that family vacation you always wanted. You can either check out Leinart Law Firm in Texas, or wherever you are local, to keep your creditors at bay or you can unlearn some of your bad money habits.
Your debt could be preventing you from getting a job, a loan for a new house or some types of insurance. That is why managing your debt is crucial to overcoming it. If you are looking for ways to get your head above water, here are some practical tips you can follow that will help you better manage your debt and even improve your credit score.
Pay Debt With Cash Flow, Not Savings
Depleting your savings account to pay off your debts is counterproductive. If you take out all or most of your money from your savings account to pay off your credit card bill, there may not be much left for your to live off of or unforeseen circumstances can put you in another financial bind. You will be more tempted to run up your credit card bill, yet again, putting you back in the hole you just dug yourself out of. Stop the cycle. Use the money that is coming in to pay off your debts. It may be a struggle at first, but this is the best way to get your debts under control.
Make At Least Your Minimum Payments
If you want to get a handle on your debts, the best thing you can do is pay your bills on time. It is probably one of the most important things you can do. When you pay your bills late, it gets reported to the credit bureau. Your credit score can suffer. You should at least be making your minimum payments on time every month. Those minimum payments are better than no or late payments.
Tackle Debts With High Interest Rates First
Your debts with the highest interest rates are your most expensive debts. Paying them off first is the recommended option when it comes to managing your debts. When you put a dent in the debts with high interest rates you will be able to turn your focus to the debts that are not costing you as much because the interest rates are easier to manage. Typically those debts with high interest rates are those from credit cards. Pay those things off first and you will be well on your way to financial freedom.
Determine Where Your Money Should Go To Next
Now that you have tackled those debts with the highest interest rates, it is normal to start looking for the best places to funnel your money. You could either put your money toward your lower interest rate debts or you could save more money. Keep in mind that for every percentage point you pay in interest toward your debt counterbalances each percentage point you earn when it comes to your investments.
If you have a mortgage with a five percent interest rate, but you have an investment portfolio that makes you about eight percent, then in that case it would be best to focus your money on increasing your investment contributions than paying off that lower interest debt.
Pay Off Your Entire Bill In Full Every Month, If Possible
When you pay off your entire bill every month, you will never have to pay interest. This can save you tons of money. Paying the bill in full is imperative because even if you owe a very small amount, you will be charged interest every time you swipe that card on every other purchase. This can create a challenge if you have a card that requires you to have a minimum balance on the card. If that is your situation, consider using a card that does not require a minimum balance when doing your everyday purchases and make sure that one is paid off in full every month.
Keep Up With Your Payments
A monthly bill payment calendar will help you keep track of all your bills. You do not have to worry about missing a bill payment. Using this calendar you can figure out which paycheck can go toward which bill. You can use a regular calendar to do this. All you have to do is write out all your bill’s payment amount next to the date it is due. Once you do that, you can fill in the date of all your paychecks. Depending on how often you get paid, you may have to fill out this calendar every month.
Take Care Of Collections And Charge-Offs
These should rise to the top of your priority list when it comes to paying off all your debts. The only exception is if you are not making enough money to do so. Make sure that you prioritize those accounts you are in good standing with because you want to avoid those accounts being turned over to collections. Once you have taken care of those accounts you are in good standing with, it is recommended that you turn your attention to those past due debts. Think about it. Those collections and charge-off debts have already affected your credit, so the urgency to pay those off do not compare to those that you are in good standing with.
Create An Emergency Fund
A nest egg of saving is always a great way to manage your debts. An emergency fund provides a financial cushion in the event of hard times. You do not have to worry about dipping into your savings account if an emergency occurs. Little expenses come up every now and then. That is life and it can be difficult to avoid. Be proactive and prepare for those expenses.
Start working toward putting at least $1,000 in your account for those emergency reasons. Once you get the hang of it, you can increase it more and more. Ideally, you want to have up to three to six months of living expenses included in your emergency fund.
Take Advantage Of A Budget
Incorporating a budget is a great way to keep track of your spending and to keep a watchful eye on your expenses. When you make a budget, you are simply making sure that you have enough money for the month to cover your monthly expenses.
You can see from a mile away if you will be able to afford your bills for the coming months, which means you can make plans to take action well in advance. That could mean giving your creditors a call or making payment arrangements. It could also mean devising a plan to hustle up and get the money needed to make your monthly expenses. A budget can also help you determine where you should spend your extra money. You could use that extra to pay off some debts!
Understand When You Need To Seek Help
For some people, financial literacy is not something that comes easily. The biggest step you can take to manage your debts is to recognize when you need to ask for help. There are plenty of resources available that can help you put your finances back on track. You could turn to a credit counseling agency, debt consolidation, debt settlement and you can even claim bankruptcy. All of these options are great, depending on the depth of your debt. Those options are not foolproof and they come with both advantages and disadvantages. Make sure you do the proper research before deciding which option is better for you.
Check Your Credit Report Annually
It is free to ask for a yearly credit report from the major credit bureaus. This allows you to take a look at your credit score to make sure there are not any mistakes or false charges. You want to look for debts or charges that you are not familiar with as it is a clear indiction of identify theft. There are some resources you can use that allow you to check your credit score every four months as long as you request your credit reports from the three major credit reporting agencies one at a time.
Throw Away Bad Credit Habits
When everything is said and done, managing your debts ultimately falls upon your habits. If you are a person who uses a lot of credit cards, cut that out. Adjust yourself to only relying on one or two credit cards to make purchases or payments. Make sure that those two credit cards have the best terms. Maybe consider getting rid of those accounts that charge you an annual fee. Just remember that the older your lines of credit are, the more it improves your credit score.
Staff Writer; Larry Jones