Problem debt stereotypically involves both online cash advances and credit card balances. Home mortgages and car loans are considered good debt. When income does not support the latter payments, it is hard to describe it as good. It takes some common sense, a bit of finesse and a lot of control in order to keep debt problems out of a budget. There are ten practical moves which can alleviate or prevent problem debt for the upcoming year.
- Look at the past year’s expense sheets and find areas of concern. Were budget problems created by overspending or was it caused by an influx of unexpected costs? You may find this job tedious and unpleasant, but the results will give you a better focus when creating a new budget for this year. When you have a plan and stick to it, finances will fall into place.
- Spend some time pondering over your savings account. How many withdrawals were there and why? How often was there a deposit? It is difficult to save, especially when we rely on a savings account to help with emergencies and/or overspending. Make a plan to have a minimum of 6 months of expenses saved to protect your against unforeseen problems.
- Lower credit card debt balances. They do not need to be paid off in order to have good credit, but you will want to have credit cards showing less than 30% of the available balance spent.
- Prevent cash advance loan pile ups. Even though they do not get listed onto your credit until they fall into default; these short-term loans will wreak havoc on a budget if left out too long. Before taking one out, have a Plan A and B to cover the full payment just a short few weeks later.
- Even if you are bringing home good income or foresee yourself doing so once school is over, do lots of research for other options before taking out student loans. Limit the student loan debt to what is affordable on a crunched budget against the starting pay in your field of study. If jobs are minimal in your field, try not to take out any student loans at all; these bills will not go away without full payoff, even in Bankruptcy.
- Try not to borrow yourself out of debt. In other words, getting a second mortgage in order to consolidate debt is risky. Turning unsecured debt into secured debt is an impractical financial move. Missing unsecured debt can hurt your credit, missing secured could get your property taken away.
- If your finances are not completely secure with money left over to spare, you should never be the co-signer on a loan. Once you sign as the guarantor you will be financially responsible if the primary signer defaults on the loan. If you don’t pay, the defaulted loan will produce negative results on your credit
- Limit cash advances and payday loan usage. These short-term loans will provide a quick fix to finances, but over use or extending payments will only end up hurting your budget. Pay them off on time and only pay original loan fees, keep the balance for longer and a high interest will be charged every two weeks against the remaining balance.
- Don’t turn your back on any kind of debt. Get help, even if it is through a credit counseling service which will teach you how to manage your money efficiently.
- Only consider Bankruptcy as a last result ditch effort against large amounts of debt. Bankruptcy lawyers will expect upfront fees to take your case, and expect full financial recovery to last a decade.
