Debt, in one form or another is often part of life. While
debt often gets a bad rap, it's not all bad. In fact, it can be a
good thing by allowing you to establish your credit. What matters
is how you manage your debt, not what specific debt you have. Here
are a few tips that can put you in control of your finances and
manage your debt like a pro. Want to go to University or
College? Most of us need to take out a loan. How about buying a
car? You'll probably want loan for that, too. Interested in being a
homeowner one day? You'll need to plunk that credit card down to
build up your credit score.
Set a detailed budget. Putting together a
budget is the first step to managing your debt. Between rent,
utilities, car payments, groceries, and all of life's other
necessities, it's important to know what you can really afford to
spend each month. Review your last six months (or so) of paychecks
and your bank/credit card statements. Did you spend less than you
earned? Did you put money in savings? If the answer to each of
these questions is "no," it's time to make some changes and cut
Or use 50/30/20 plan.
While you can allot specific amounts to certain areas of your
budget ($200/month for groceries, $75/month for gas, etc.), you can
also try a more general budgeting technique that many people find
less overwhelming: the 50/30/20 rule. A full 50 percent of your
budget should go to "needs," such as groceries, housing and
utilities. Thirty percent can go for "wants," like new threads, a
huge data plan and fancy iced coffee. The final 20 percent,
meanwhile, goes straight to your savings account.
Adding to your savings is an important piece of the
puzzle. If you don't have an emergency fund built up,
every time you run into trouble - hello, car repairs - you'll wind
up charging it on your credit card. When you do that, you run the
risk of amassing debt you can't handle.
Pay off your credit card in full each
month. You've probably heard this a million times,
but there's a reason for that - it's really the easiest way to
control your credit card debt. If you carry over your balance from
month to month, you pay compound interest. That means that if you
have $500 in credit card debt and you pay it off over 2 years at
$25 per month, you'll wind up paying $91 in interest, or nearly
$600 for an item that you purchased for $500. Do you really want to
overpay for a month's worth of takeout, groceries and gasoline over
the course of two years?
To keep your credit card debt from ballooning, use your
credit card as you would a debit card. Track your
credit card purchases using an app, online banking, record them in
a check register or a notebook at the end of each day. Set a budget
and stick to it - just because you CAN buy it on credit doesn't
mean you SHOULD.
The good & the bad- So debt can be
GOOD by allowing you to establish a great credit score and help you
get approved for any future loans or mortgages you may need. It can
be just as BAD if mismanaged as this could get in the way of being
approved for the same mortgages and loans.