Accomplish Your Personal Goals by Managing Debts

At this moment, millions of Americans are deep down in debts. The amount of debt may vary, but you can hardly find even a single American household that doesn’t owe at least one debt. Owing debts are not good for your financial health. However, if you can manage it effectively, it would help you accomplish your personal financial goals.

How to manage debts effectively

Here are some tips that can help you effectively handle your debts and meet your financial goals.

• Avoid borrowing an amount which is difficult for you to pay back – Borrowing money for college admission or buying a home is often unavoidable. Make sure you borrow exactly what you need. Don’t borrow any amount that you can’t afford to pay off. Shop around for the most competitive interest rate.

• Avoid using credit cards – Avoid using credit cards especially for purposes like eating out or holiday trip, unless you’re able to repay the debt within one month or two. Try to put some cash aside every month so that you can fulfill your wishes with that money. Also, try to pay back any credit card debts as fast as you can to avoid paying interests.

• Control your spending impulse – Stop spending injudiciously; have control over your spending habit. Buy things that you actually need. Make a budget and start saving. It’s always better to be late than never.

• Pay off higher interest debts first - Use debt avalanche method of debt repayment to pay off your outstanding debts. According to debt avalanche method, if you owe more than one debt, then pay off the debt that charges highest rate of interest. At the same time, the method requires the debtor to pay the minimum due on other debts too. Once the highest-interest-debt is paid off, start paying off the second highest-rate debt, and so on.

• Pay off outstanding debts quickly – It’s good to follow debt avalanche method, but make sure you pay off the debts as soon as possible. However, if you take too much time to pay off the debts, then you’re likely to take years to paying off the balance due on lower-interest debts. Eventually, you may end up paying off thousands of dollars in interest.

• Avoid borrowing from retirement plans – Taking loans from retirement plans like 401 may result in falling short of your retirement savings or even loss of your home. Therefore, try to avoid taking out a loan from such sources.

• Build an emergency fund – Accident can happen anytime without any prior notice. Therefore, you should always have enough cash to handle any unforeseen financial emergency situation. Build an emergency fund by putting aside some money every month.

• Go slow and steady in paying down mortgage – Don’t be too fast in paying down your mortgage loan, if you already have other debts. Usually, a mortgage comes up with lower interest rate than other unsecured debts. Moreover, under certain circumstances, you can deduct the interest you disburse on the initial 1 million USD of a mortgage. You also have the option of refinancing your mortgage loan.

These methods can help you manage your personal finance efficiently even if you owe debts. However, don’t delay to get debt help if the debts are likely to break your back. There are a number of reliable debt counseling agencies that can help you get out of your debt problems.

This is a guest post by Tim Scott, a senior insurance advisor at Best Insurance Leads. He writes for a number of online insurance journals and portals.