Credit and debt management are important components in financial planning, but they are only small parts of your big financial planning picture. However, learning how to use credit wisely and manage your debt well can be a key to your financial success. The more you know about credit, the more likely you are to use this powerful tool wisely.
With the easy availability of credit, most of us end up with uncontrollable debt or serious credit problems through a series of bad financial decisions, poor knowledge of the basic principles that underline our credit-based consumer society and bad lack.
We live in a world where credit is replacing cash as the means to make purchases and even for the basic things of life. Today, few of us have ready cash available to pay for some of the necessities and luxuries of life. In such situations, we have three alternatives in financing current purchases:
Each of these alternatives has trade-offs. For example:
So, at one time or another, you will have to make purchases on credit. But if this is done without caution, financial troubles begin as a result of too-large debt.
Therefore, understanding credit and debt management will help in setting financial goals and making informed financial decisions about your financial future.
The best credit and debt management advice is never to incur any debt. However, since that is impossible for most of us, the best way to manage debt will be to learn and begin credit and debt management before you become a borrower.
If you have no debts, it is advisable to observe the following:
1. Pay your Bills on Time: Pay your debt obligations on time and every time.
- Send payments at least 2-3 days before the due date to ensure that your payment arrives on time.
- If you are going to be late with your payment, call your creditor immediately. Explain your situation. Some creditors, if not many, will gladly accept.
- If you do not have enough money to make payment for the month, suggest to your creditor that you can pay perhaps half the payment now and the rest next month.
- If unemployment, divorce, sickness, etc. puts you in a situation where you need to suspend payments, discuss your situation with the creditor.
The key point is contacting and working with your creditor. Never assume that your creditors are going to "walk away" from your debt obligations. You want to avoid having your properties being auctioned. Creditors will be happy to work with you if you make a honest attempt to resolve your situation.
2. Keep Records: Keep and maintain all records when speaking with your creditor. Note the date and time, the person's name with whom you are speaking with, the issue that you called about, and the recommendation the creditor offered. Request a confirmation or other identification that proves that you spoke with your creditor. These records are important proof in the event you receive non-payment notification with penalty fees.
3. Avoid these Costs:
- Late Payment Charges: Fees charged for scheduled payments that are past due.
- Over-the-Limit Fees: Fees charged for making purchases over your credit line limit. Your best rule is keeping your credit line balances at 50-60% of the total credit line limit.
- High Interest Rate Charges: Fees charged for carrying a credit balance beyond the interest free period. Your best rule is to always payoff your credit cards each month to avoid interest rate fees,
4. When Creditors Call: If you receive a creditor’s notice, contact your creditor immediately.
Even if you do not relish the idea of owing money, chances are good that you will be in debt at some point in your life. This is because for many of today's purchases you need more money than most people can comfortably earn in a reasonable amount of time. The good news is that some debt is not only safe, but it can actually be healthy for your financial life if well handled.
To keep your debt manageable, though, follow these few expert credit and debt management tips:
If you have too much debt, you may have a hard time paying off your bills each month, and you may feel extreme stress over your financial situation. You may be late with bills and you may get harassing calls from your creditors. Perhaps you simply resent that debts take up so much of your income. If you feel uncomfortable about your debt that is a good sign that you are too far in debt.
There are several credit and debt management steps you can take to improve your situation: