You can engage in self debt help without purchasing the services of a professional. Here are five tips if you want to manage your own finances.
Know Your Debt Limits
The first step in managing your own debt or getting out of too much debt is to understand your debt limits. Most people are unaware of how much debt is truly tolerable relative to their income. You can calculate this easily by adding up all of your regular monthly debt, minus utilities, groceries, gas and personal expenses, and dividing the total by your gross income. This will give you a debt percentage, and it should be under 50. If it is over 50, you are over-extended and should take steps to reduce debt as quickly as possible. It goes without saying, moreover, that no additional debt should be incurred until the percentage is well below 50. At no time should you allow the percentage to go above 50.
Create and Live With a Budget
The best method of eliminating bad debt(that debt that has high interest charges and for which consumable or short shelf life items are purchased) and living within your means is the development of a realistic budget that allows for payment of all monthly debt and expenses, and allows some extra to put away for future use. If you do not develop a budget, you have no plan, and debt can get away from you.
Pay Off Credit Cards Faster
Credit card debt results in more bankruptcies and financial woes than any other debt. An individual who has several cards with high balances is flirting with disaster and should work very hard to get these paid off as quickly as possible. The only way to reduce credit card debt is to vow not to charge anything more and to work on paying off one card at a time. This is accomplished by putting as much as possible above the minimum payment on one card until it is paid off and then dumping all of that money onto the next card, and so on. This requires self-control and a commitment to avoid spending impulsively for a significant period of time. The results, however, are well worth the initial sacrifice.
Begin Saving Against Future Emergencies
Many get into overwhelming debt because they have no savings to fall back on when an emergency arises. Thus, a layoff, temporary unemployment, or an unforeseen medical or repair expense can be a killer. Begin right now to set aside a small amount from each paycheck for this purpose. It is placed in a separate account and NEVER used unless an emergency arises. Note that this savings is not to be confused with permanent savings for retirement. That is another matter entirely.
Focus on Incurring Only “Good” Debt
Good debt is that which is incurred for items or services which have lasting value. Thus, a home mortgage is good debt. If well maintained, a home will increase in value as the amount of the loan decreases, and will provide a major asset over a lifetime. A car loan may be considered good debt if there is still value in the car once the loan has been paid off. Other good debt may be student loans, because the value of an education translates into higher earnings over a lifetime.
Anyone with the ability to commit to personal financial management can follow these simple five strategies. They are the same strategies that would be given by financial management professionals, for which a fee would be paid.
