7 Ways to Effectively Manage Debt
7 Ways to Effectively Manage Your Debt
It’s no secret that most of us have debt and it can cause us a lot of stress. But how would you like to relieve some of that stress? We can’t make your debt disappear overnight but we can give you tips on how to manage it better.
1. Track Your Spending. Do you know where all your money is going? The best way to know is to track your spending and bills. For the next (90) days, track each transaction you make including bills and debt. Label your spending under categories: Monthly Bills, Entertainment, Food, Gas, etc. This can be done through your online banking, tracking programs such as Quicken and Mint, or by using one of the many apps available in the App Store or Android Market on your mobile device. Allocating your money strategically by tracking your expenses will help you manage your debt.
2. Evaluate Your Debt. Do you know which debt to pay off first? Decide which debt takes priority by knowing the guidelines of each loan you have. We suggest reading your loan contracts and disclosures. You should be informed of the pay off amount, interest rates (APR), fees, and the term of the loan (“term” is the time period in which you have to pay off the loan).
3. Pull Your Credit Report. Your credit report will indicate open lines of credit, loan balances, payment history, credit limits, and any delinquencies. Make sure that the information stated on the report is correct; this can help prevent fraud. Having incorrect information can also greatly affect your credit score. If there is a discrepancy, report it immediately. For a free credit report review, click here.
4. Know Your Credit Score. The information on your credit report is used to calculate your credit score. The most common is the FICO Score, which can range from 300-850. Fair Isaac Corporation (FICO) is a global provider of analytic, software, and data management products and services, specializing in the credit analysis market. FICO is the standard measure of consumer credit risk in the United States. Your credit score shows your credit risks to lenders. It will be used to determine your interest rate on your financing. Low Score → High Risk → High Interest Rate.
5. Consolidate Your Debt. “Debt consolidation” is just a fancy term for combining separate loans/debt with the intention of saving money. If you have multiple credit cards, student loans, and a car loan then you may consider this option. It makes it easy and convenient for you to pay one lump sum that in turn pays out each of your loans individually. Debt consolidation also has the benefit of having one rate instead of a different rate for each loan.
6. Schedule Your Payments. Have you ever forgotten to pay a bill and then were hit with a late fee? There are a few solutions to this problem. Some people set reminders on their smart phones. But let’s face it, we all hit the snooze button on the alarm or reschedule those reminders. Instead, we recommend setting up auto payments. This can be done through your lender or online banking. “Bill Pay”, allows you to set up electronic one-time, recurring, or auto payments. By scheduling your payments, you won’t waste money on late fees and you save time.
7. Save for an Emergency. Always pay yourself first! Do you have savings for a rainy day or maybe a thunder storm? No matter how much debt you’re in, you should always have an emergency savings account. It’s suggested that you have at least three to six month salary in your emergency fund. Not sure you can do it? Start by taking a small amount from each paycheck, as well as any “extras” such as holiday cash or birthday money, deposit it into the account and you’ll have a fund in no time. So if your car needs new tires or you run out of sick days, you’ll be covered.
As you manage your debt, you become more confident and less worried. Know where your money is going, perform a financial assessment, pull your credit report, know your credit score, consider consolidating, be consistent with your payments, and make sure to still put money into savings. This may be difficult at first but as you grow your savings and decrease your debt, you’ll be proud of what you’ve accomplished. Now is the time to take control of your debt; don’t let it take control of you!