A big part of staying out of debt trouble is managing the debt you have. Follow these five debt management tips and you should be in good shape.
1. Pay down higher interest debt first
If you’re carrying a balance on more than one credit card, make your biggest payment every month to the one with the higher interest rate. Pay at least the minimum payment on the card with the lowest interest rate and direct all extra money you can afford to pay to the higher rate card until it’s paid off.
Use the same strategy for loans. If you have extra money, pay more on the loan with the higher interest rate. For example, if you have a first and second mortgage, pay more on the second mortgage, which is likely to have the higher interest rate.
2. Reduce the cost of your debt
You should always be looking for ways to cut the interest rates on your debt. For example, you can use your credit cards to consolidate debt and lower your interest rates.
If a card offers you a low interest balance transfer offer, utilize it and transfer your high interest balances to the card.
If you own a home and have an opportunity to refinance your mortgage to a lower rate, do so as long as it makes sense.
Also, don’t be shy about asking your credit card company to reduce your current interest rate. Be prepared to transfer balances and switch cards if the card company won’t budge.
3. Pay your bills on time
One of the worst things you can do is pay your bills late. Not only will you incur additional finance charges, but you will also probably be charged a late payment penalty.
Paying bills late can also hurt your credit score, which can make it more difficult to get loans in the future and cause you to pay higher interest rates.
4. Spend less
You shouldn’t use your credit cards to buy things that you can’t otherwise afford. If it takes you six months to pay off a big-screen TV, you shouldn’t buy it. Save the money first, instead.
If you find you have to use a credit card to cover necessary expenses, such as utility payments and groceries, it means you are spending too much money.
Look for simple ways to save. These include eating out less, cutting down on your cable TV bill and spending less money on entertainment.
5. Bring in more money
If you’ve tried all the other tips listed here and still can’t seem to get a handle on your debt, then it’s clear you need more money.
There are plenty of things you can do to accomplish this. You can get a second job, work more hours at your regular job or sell some of your stuff.
Make sure you direct any extra money you earn to paying off debt.