5 Tips to Help You Manage Debt
, by Rob Kaufman
With the holidays coming up, it's important to keep a close eye on the money you have... and the money you owe. During this time of year, our focus is typically on how much we have to spend versus how much we should be saving. Our attention is on gift-giving and festivities, not how to manage current debt and save money at the same time.
We're going to change that up a bit by offering 5 tips to help you manage debt and keep more money for the future. Hopefully one, two or all of these tips will help you reach the goal of paying off debt and easing your anxiety a bit. Consider it one of our holiday gifts to you!
5 Tips to Manage Debt during the Holidays
Track Your Spending
First: calculate your expenses for one month. Second: calculate those potential unexpected costs like auto and home repairs, medical, seasonal maintenance, gifts, vacations, etc. and divide that number by 12. That will give you your average monthly expenses. Third: Take your monthly income and subtract your average monthly expenses. Do you have a surplus? If so, great! Use some of that money to help pay down your debt and the remaining amount to put into investments and/or savings. If there's a deficit, it's time to sit down and figure out where you can cut expenses.
Prioritize Your Debt
Make a list of all your debts including the balance and payment requirements for each. Billing statements, credit reports and online bank account information should have the information you need to create this list. It's then a must to prioritize your debt. Credit card debt is typically the best item to pay off first because it usually has the highest interest rate. If you decide to pay down credit card debt first, think about starting with the card that's charging the highest interest rate. Why? The monthly finance charge is based on your balance and interest rate. That means, the higher the interest rate, the higher the finance charge and the more money you'll be spending.
Keep Good-Standing Accounts In Good Standing
When in debt, there are two types of accounts - those that have been affected by debt and those that have not. The accounts already affected might be in for collection by creditors. If not, they might be sitting on your credit report lowering your credit score. When you have a slim budget, don't place your unaffected accounts in jeopardy by trying to pay off those that already are in trouble. Pay those particular accounts when your budget allows you to do so.
Consolidate Your Debt
Taking all of your individual loans and combining them into a single, larger loan (with a longer term and lower interest) is a great way to manage debt. It helps to lower your debt because you're paying one payment instead of multiple payments while, hopefully, lowering you total monthly loan expense. Consolidation strategies can include:
Credit Card Transfer. Taking current credit card debt and additional installment loans, and transferring them to a card with a lower or 0% monthly interest rate.
Home Equity Line of Credit (HELOC). A home equity line of credit (also known as a second mortgage) provides you with the ability to borrow money against your home's collateral.
Debt Consolidation Loan. A debt consolidation loan allows you to roll all debt balances into one loan with a lower interest rate. It can also help you to pay down principal faster.
Grow Your Savings
As you work your way out of debt, saving must become part of the routine. Once you're at the point where there's money remaining after paying your debt and other expenses, start depositing a portion of each paycheck into an emergency fund that you set up as a savings account. If possible, at the same time you can set up another savings account for "investments." The goal of this account is to build it up to the point where you can have enough money to start investing in stocks, bonds or a retirement fund that can help secure your future.