In these tough economic times, many of you may be looking for ways to spend your money wisely and to manage your debts in a better way.
Considering the current economic scenario, you may not always have ready cash with you to spend on a new household appliance, a car or your children’s higher education. You will most likely use your credit card or take out a personal loan to finance these requirements, and there is nothing wrong with that. But if you are reckless in your spending and do not manage your debts well, you may soon find yourself in a debt trap.
Here are some tips on how to keep your debts under control.
Prepare a monthly budget
This is perhaps the most effective way to keep track of where your money goes every month. You can control only what you know. Determine your fixed monthly expenses. Reduce the expenditure on items that are optional. For your credit card repayments, always budget for more than the minimum amount. When you pay just the minimum, you end up paying a lot in interest which will slowly erode your balances. Budget for an emergency fund, which must be enough to take care of 4 months of future expenses. This emergency fund can come to your rescue and prevent you from having to take a payday loan if there is an unexpected urgent financial requirement in future.
Borrowed money is not free money
When you borrow, you are essentially buying money at a price. Perform due diligence and make sure that you shop around for the best deal before taking out a loan or applying for a credit card. Credit card companies and lenders may lure you with zero interest or zero down payment offers, but there are often large penalties associated with default in payments. Look for hidden clauses and make sure that you are familiar with the terms before you take the money.
Prepare a personal debt management plan
If you do not have a personal debt management plan in place, it is very easy to lose control of your debts. Prioritize the debts that you have. Pay off your higher interest loans as fast as possible. If you use your credit card to purchase groceries and other small items, pay them off every month. Do not let small purchases accrue and become a big amount for which you will have to pay high interest. Always document your credit card purchases including what you bought and when, the amount and a plan to pay it off. The US Federal Trade Commission provides excellent information on how to prioritize your debts, manage your debts effectively and also what to do should your debts spin out of control.
Get help if you cannot manage on your own
By approaching lenders and credit card companies directly, you can do your own negotiations on reducing interest rates or modifying other repayment terms. But if you feel that you need extra help, you may consider credit counseling. National Foundation for Credit Counseling is an excellent source from where you can receive financial counseling and education.
Know your rights
If the debt collectors are knocking at your door, know your rights as a citizen. Debt collectors should not harass, oppress or abuse you. They should not threaten you with arrest or imply that they are government officials who are investigating your “crime” of non-repayment.
Even if you are in a desperate debt situation, do not despair. With a proper debt management strategy, you can still master your debts.