You may feel you’re good with money, but even the most financially savvy people can get themselves into hot water. And in most cases, this hot water involves debt.
If you were to calculate how much you owed creditors, would you feel good or bad about your situation? Maybe you’re not where you’d like to be, but if you adopt a few simple strategies, you’ll be in a better position to successfully manage your debt and avoid a financial shipwreck.
1. Don’t get too many credit cards
There’s no rule regarding how many credit cards to have. Some people have 10 credit cards in their wallet, whereas others may have only one. It all depends on personal preference. Just know that the more credit cards in your wallet, the more tempting it is to spend. In all honesty, you probably don’t need a handful of cards, instead you can get by with one or two major credit cards.
2. Pay cash
There’s no instant gratification when you save up and pay cash. And yes, this means that you can’t buy what you want, when you want it. But what’s better, satisfying your immediate needs or long term financial fitness - you decide.
It’ll take longer to get the things you want. However, at the end of the day, paying cash saves money. With cash purchases, you don’t have to worry about interest and possible late fees. You own the item free and clear.
3. Don’t take a cash advance
As tempting as this may seem, never take a cash advance - unless you’re absolutely certain that you’re able to pay your balance in full. The interest rate on a cash advance is higher than your purchase rate, and there’s no grace period on cash advances. Since monthly payments first pay down the interest on balances with the lowest rate, it can take years to pay off a cash advance.
4. Pay off your cards in full
Here is another good piece of advice, although often ignored. Paying your credit cards in full each month shouldn’t be optional. A credit card is helpful when you absolutely need to make a purchase and you’re short on cash. However, you should only use a credit card if you’re certain of your ability to pay off the charge. If not, the charge will sit on your card month after month collecting interest.
4. Get life insurance
This isn’t for your protection, rather it offers protection for your family. Depending on your debt load, a term or whole life policy can be the thing that keeps your family’s finances alive. For instance, life insurance can help provide a death benefit to pay off your creditors, as well as replace your income. For many families, this makes all the difference in the world.
Life insurance needs vary by person, and if you’re single with no dependents, you may not need a huge policy. However, some type of coverage is better than none. And even if you don’t have children or a spouse, you may have credit card debt and other personal loans that must be repaid.
5. Don’t cosign or lend out your credit cards
Another way to avoid debt--don’t put your name on the line for others. Cosigning may feel good, as you’re able to help a relative or friend. But this feeling can quickly turn to panic and anger if the person defaults and leaves you with the monthly bills.
6. Downsize to avoid debt
Living on credit can skyrocket your debt. Don’t wait for the situation to get out of hand. Make moves to downsize before you hit bottom. A cheaper house and a less expensive car can free up cash, helping you meet obligations.
Debt can take over your life and have a negative effect on credit scores. Debt consolidation might get you out the hole. But for this and other strategies to work, you need to recognize the main problem and get a better handle on your finances.