Probably the best debt management tip of all is to begin managing your debt before you even become a borrower. Unfortunately, this is something that the overwhelming majority of us simply don’t do. But here’s what they can do to become much better debt managers.
Track your spending
You need to track your spending and how much income you can expect in the near future. Subtract your spending from your income and you’ll then know how much money you have to pay your creditors. Fortunately, it’s now practically drop-dead simple to track spending thanks to the myriad of free apps available. The most popular of these is probably Mint but there are countless other good ones such as DollarBird and GoodBudget.
Have an emergency fund
You can just count on the fact that you will have unexpected and unbudgeted emergencies. If you don’t have money set aside to cover them, you’ll have to borrow it – one way or another. This means just heaping on more debt. While most financial experts say your emergency fund should be the equivalent of six months’ living expenses that’s a bit extreme for most of this. Try instead for three months of your living expenses. That way, when the water heater dies or your old washer-dryer gives up the ghost, you’ll have the money to cover it and won’t have to use a credit card.
Don’t borrow without first doing your homework
The best way to look at borrowing money is as if you were buying it and treat it just as you would any other big purchase. Whether your choice is to borrow money from a bank, by opening a new credit card or through a finance company be sure to comparison shop to get the best deal you can. This can be especially true if you’re thinking of opening a new credit card. Check out at least three different offers and make sure you carefully review their terms and conditions. The top of the offer might scream, “Open a new account at just 12% interest and earn 2% cash back” but the fine print of the terms and conditions might be so full of fees and penalties that you would find it much less desirable.
Prioritize your debts
If you’re struggling to pay your debts, don’t make the mistake of just trying to juggle them. Prioritize them with the ones at the top of your list being the secured ones such as your mortgage or auto loan(s). The reason they should get top priority is because if you fall behind you could actually see your home or car repossessed. Next on your list should be those necessities of life such as your rent and utility bills. Last should be your unsecured debts like your credit card debts, personal loans and lines of credit.
Make a plan before you borrow
One of the worst things you can do is lose control of your money. When you do this you’re basically letting the lender decide your monthly payments. What you need to do instead is keep track of all your credit card purchases and have a plan for paying them off. Also, try hard not to make just the minimum monthly payment on any credit card. That’s a sure way to get into even more trouble with debt. As part of your plan set a goal for paying off the debt that has the highest interest rate as quickly as possible. And be sure to pay off those little credit card purchases every month. Stuff you purchased on sale isn’t a bargain any more when you add accrued interest to that sale price.
Comparison shop for debt management advice
Just because somebody wrote a book or an article on debt management or created a website related to debt management doesn’t necessarily mean that person is an expert on personal debt management. Comparison shop for your debt management advice just as you would for a loan. The best solution is to find several opinions that match up with those of other experts. For example, Dave Ramsey has written a number of books on debt management, the most popular of which is probably The Total Money Makeover. If you decide to read it be sure to make notes and then go look for other experts that have the same opinions as Dave. Ditto any other authors or websites you read.
Know your rights
You have rights as a debtor that can protect you from unscrupulous lenders or, worse yet, debt collectors. Our Federal Trade Commission (FTC) is an excellent resource that can help you better manage your debts along with good information about what to do should they spin out of control.