Personal finance can be treated as a micro-economy that brings complexities similar to those of global economies. Aite Group and Chase Blueprint provide a good analysis on how simpler finances translate to a better fiscal health. The group did a study involving more than thousand consumers, analyzing factors such as bill payments and debt consolidation.
An important implication from the study is ‘the more complex your personal finance is, the more likely you are to delve into the debt domain’. Bill payments and spread out expenses can be resolved if things are kept simple. Regardless of your financial sitaution simplicity will always be key. Understanding your spending, saving, and income are critical. This can be achieved by the numerous automated tools available online that help with the calculations, if you are reading this financial advice online why not use some of the tools that are out there for the taking.
Showing financial intelligence
Well, automation is the easy way out. The main target should be to develop a certain financial intelligence with the available cash flows. Your cash flows at the end of the day decide how much debt you owe, what funds can be consolidated for payments/retirement funds and other related questions.
How can this target be achieved? There are three ways to go about it:
1. Be smart with your retirement funds
Debt consolidation is nearly always a better option than declaring bankruptcy. Additionally, you can prioritize retirement savings to manage finance. The retirement savings plan is pretty extensive and presents more options. Roth IRAs are an ideal option, as Charles Schwab and other retirement fund management companies have decent incentives on offer. You can also use such resources to discover a wide range of alternatives for all your cash needs.
More importantly, the penalties for early withdrawal are not as severe as conventional 401 (k) accounts. Also, the investment options in the case of Roth IRA are well diversified, so they will generate you more than one source of positive cash inflows. Also, retirement funds are exempted under the overhauling of bankruptcy laws. But note that while the accounts are exempted, excess amounts can be deducted to pay unsecured creditors. So, it is more viable to go with consolidation rather than filing for bankruptcy.
2. Adjusting credit scores with debt consolidation
It is imperative to identify cash flows that have a negative impact on your credit score and take a proactive approach to reduce them. This is one of the most important steps in financial simplification.
While there are misgivings that debt consolidation may hamper your credit score, it can actually make the credit portfolio more stable. The idea is to use the money under your plan to mobilize the payments. When you start to owe less money, your credit score can significantly improve. Once you have handled that low or plumetting number everything else becomes easier.
3. Monitoring credit card balance transfers
Another avenue of your cash flows is the high interest credit card balance. Most individuals facing debt crisis are unaware that it is possible to transfer them to a lower rate, which will provide better consolidation.
The only precautionary measure you can take in this case is to make sure that the transfer is done within the introductory period and available credits are not used to combine balances. This move would cater to your credit score (see ooint #2)
Financial intelligence is mandatory now in order to deal with the debt. The nature and amount of debts vary with our individual expenses. However, the notion of streamlining and prioritizing cash flows is a universal tool that can be used for debt consolidation, so take the above to heart, or rather to your wallet and soon enough you will realize how much easier life is when you are not constantly stressed about debt.