5 Effective Ways to Handle Debt
by Ginny McCabe
What is debt?
Generally, debt is the amount of money that is owed to a person, financial institution or organization for monies borrowed. Debt can be represented by a mortgage loan, a vehicle loan, credit cards and other types of repayment. With debt, we need to factor in variables, such as fees and interest—above and beyond the amount we borrow. Some people want to avoid debt, or have no debt at all. Others believe that a reasonable amount of debt is okay. Here are five things to consider when looking at our debt.
1. Know how much debt you owe.
Make a spreadsheet or a list of what is owed. Include the creditor, amount owed and the due date for each obligation. Review the list periodically, and keep track of what is owed. As the amount of debt changes, reflect that on the list. The spreadsheet or list will allow us to look at what we owe to whom, and how much is owed to each creditor, along with the appropriate payment amounts. Keeping track of debt is a part of our budget that will help us determine how much we’ll spend each month on expenses and debt repayment.
2. Create a plan to manage debt.
Once we have a spreadsheet, or a list of what’s owed, we can start to manage debt. One example of a way to reduce debt is to pay our bills on time. It will not only be a step toward reducing debt, but it will also help us avoid late fees, and additional finance charges. Another helpful tool is to create a monthly bill payment system on the calendar and mark down what’s due when, along with the amounts that are due. Make at least the minimum payment due each month. Also, factor in when you get paid. As part of our debt management plan, establishing an emergency fund of several thousand dollars can be a good resource to fall back on, if needed.
3. Keep credit card debt low and make more than the minimum payment.
One way to reduce debt is to eliminate or have a low amount of credit card debt. Credit cards have interest rates when we carry a balance on a card. High interest rates can create more debt. For example, if we have a balance on a credit card, and we only make a minimum payment, all or most of the payment amount is going toward interest, not the principal or amount that’s charged on a purchase. However, if we make more than the minimum payment, the extra monies paid will go toward reducing the principal. With credit cards, it can be helpful to look for cards that have the lowest interest rates. Also, 0-APR/Annual Percentage Rate balance-transfer offers can be helpful, because monies paid usually go to the principal, instead of only being applied to the interest. Interest, in the form of an APR, is a fee for borrowing the money. In 2016, statistics showed the average credit card debt per household was about $5,700.
4. Look for the lowest or best interest rates on larger loans
Looking for the lowest interest rates is another way to manage our debt, especially when it comes to debt like a mortgage, or car and student loans. Considering our options when we take out a new loan can help us to save money. With loans, there can be several variables involved, such as the loan amount, interest rate and the terms or length of a loan. Another thing to watch for is a “variable interest rate” loan. If we borrow money at a variable interest rate, the cost of the loan can go up or change as market rates rise, and this creates more risk.
5. Keep your retirement goals in mind.
Continue to save money and invest. If we save $2.50 per day, over the course of a year it equals $912.50. That’s close to a thousand dollars. Over five years, saving $2.50 a day equals $4,562.50. Breaking down our goals into smaller segments or increments can make them seem more manageable. In this example, $2.50 per day seems reasonable. It might mean making coffee or bringing a snack from home instead of spending $5 or $10 a day at a local coffee shop, or packing a lunch a couple times a week, versus eating out every day. Another consideration is investing in your company’s 401K and taking advantage of the company match. Saving and investing can add up, significantly, over time.
When reviewing debt, ask yourself:
What amount of debt do I have?
Do I have a plan in place to pay off debt I owe?
What are a few examples of when I should look for lower interest rates?
What impact can debt have on my overall budget and financial plan?
How can I best manage debt in the future?
Tips on managing debt:
Monitor the amount of credit card debt accumulated.
Seek low or the best interest rates when it comes to car or mortgage loans.
Prioritize debt and create a plan to manage it.
Plan for retirement. Continue to save money and invest.
Ginny McCabe is a bestselling author, an award-winning journalist, media professional, speaker and teacher. Her work may be seen in publications like Journal-News, Reuters and Christian Retailing. Her books have been published by Thomas Nelson/Harper Collins & Standard Publishing. Ginny has spent decades covering topics like news, entertainment, business and faith-inspired themes. She serves on the board of Greater Cincinnati Society of Professional Journalists. Follow her @ginnymccabe on Twitter, Facebook @ginnymccabeauthor and at www.ginnymccabe.blogspot.com.
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