Debt management isn't just a term that financial advisors use when their clients are in trouble. Getting a handle on your debt is the best way to avoid making expensive mistakes like buying things with cash or on credit, not paying attention to loan terms, interest rates, refinancing, and so on.
On the other hand, there are both good and bad kinds of debt. Borrowing money to pay for college or a house is considered good debt because you are investing in personal assets that will be worth the extra costs over time and can have benefits for the rest of your life. But most bad debt comes from careless use of credit cards, especially by teenagers, but no one is safe here.
It's never too late to learn how to make a budget, save money, and avoid making mistakes that cost a lot of money. I know that most people don't like the word "budget," but it really is the key to making money work for you. It is a compass, a guiding light, and a way to get where you need to go in life to get what you want. Would you bring a map with you on a car trip to a place you've never been before? You would, of course. If you didn't, you would get lost, which would be frustrating and cause you to waste money and time. A budget is a plan that shows you how to get to where you want to be financially. If you don't have one, you will definitely regret it at some point.
One of the best things you can teach your kids as they grow up is how to plan their money. Remember that vacations, everyday items, and other similar things are considered bad debt, especially if you use your credit card to pay for them instead of getting a loan or using the equity you've built up in your home.
But when it comes to spending money you need to pay back money you owe, everything depends on how you handle your money. If you look at the success stories of wealthy people, you'll find that many of them borrowed money to get where they are now, but one of their secrets was that they kept their spending under control so they didn't end up with bad credit.
To keep track of your debts, it makes sense to figure out if you can pay for goods in the next few months or year. If you borrow money or buy things on credit because you think it's a way to get things you can't pay for with cash, you're paving your own way to bankruptcy. The more debt you have that doesn't make sense, the more likely you are to have a financial disaster in the future.
You can use this to your advantage by spreading out payments. If you haven't made a budget for your home or office costs yet, start keeping track of what you spend for the next few weeks. Keeping track of your money is easier when you know where it goes.
Most people know where their money comes from, but not many know what happens to it after they get paid. If you take out taxes and all of your fixed and variable monthly expenses, you can get a better idea of how much money you have left over to pay off your debts. Think about all of your regular payments and fixed costs, like food, utilities, transportation, insurance, housing, and so on. Subtract these amounts from your income, and you'll have the money you need to pay off your debts.
No matter how important entertainment is to you, you need to keep a close eye on it and other things like restaurants, trips, and shopping if you want to spend less than you earn. Once you know how much money you have to pay off your debts, you will know if you can afford to borrow money to buy assets whose value goes up over time. This is called "good debt."
Always remember how much credit cards really cost, and don't buy things that lose value. If you really need them, get them, but if you can, pay for them with cash instead of credit. The same goes for things you use every day: buy them with cash or, if you have to use a credit card, pay off the balance every month. Controlling your debt is easy if you keep track of your spending and stick to a budget. This will also help you keep or improve your Credit Score and your chances in life in the long run.
