With the explosion in the use of credit cards, personal loans, ever-increasing mortgages and even out-of-control mobile phone bills, many of us are finding it increasingly difficult to manage our debts. Here we provide some useful tips that could help you better manage your debts and improve your finances.
Debt isn’t bad in moderation
Firstly, it’s important to remember that debt isn’t necessarily bad. It can give you a chance to buy those more expensive items without waiting months or even years to save for them, such as a family car for example. But like everything else in life, it pays not to over-indulge. You need to show restraint and you need to think hard and fast before deciding to purchase anything on credit.
Watch your credit cards
Credit cards can be very handy but they can also lead you into a trap. Why? Because they are so easy to use! You buy something and all you do is hand over your credit card, the assistant swipes the card and you sign for it. Simple! In fact, you don’t even feel like you’re actually buying anything, no getting money out of your purse or wallet, no change. And here lies the problem. When we use our credit card to buy something, we don’t feel like we are spending any money. There’s not that feeling of separation anxiety that you get whenever you hand over a large amount of cash.
Use your credit card wisely. Before making a purchase ask yourself whether you have the money to repay your credit card. If you can, pay off your total balance each month. This way, you can still reap the benefits of any rewards or loyalty programs without paying any exorbitant interest charges. If you have several credit cards, consider transferring the balances into just one card. This way, you can take advantage of the lower rates that the card companies generally offer for balance transfers. But if you do this, cut up your other cards. Don’t just transfer the balance to take advantage of the lower rate and then start using the card again. This will get you nowhere.
Consolidate your debts
Consolidating your debts into the one loan can help you effectively manage your debt, Firstly, you will only have to make one monthly repayment instead of several and you will generally pay less in interest charges. If you have a mortgage, try consolidating your debts into your mortgage if you have enough equity. Your mortgage will have the lowest interest rate so this will save you more in interest repayments. But a word of caution here: try to repay the same amount as you were paying prior to consolidating into your mortgage. The reason for this is that you can reduce your total repayments because of the much longer term of your mortgage, however in the long run, you could end up paying far more in interest because you are repaying your debts over a much longer term.
Prepare a budget…and stick to it
If you want to reign in your debts then you need to have a clear understanding of how much you are receiving each week and how much you are spending. If you sit down and work this out, you may be shocked to find that you are spending more than you are earning. Preparing a budget will help show you how much you can spend each week without getting into more and more debt. But remember, if you prepare a budget, you need to stick to it.
A handy tip to help you stick to your budget is to allow yourself a little extra each week for such luxuries as going to the movies, eating out once a week or a buying a nice bottle of wine for dinner. This will help you because it means that you are not completely depriving yourself and so you will be less tempted to break your budget.
Of course, with all of these tips, the secret is to remain disciplined. If you find yourself still wallowing in debt after you have tried these simple tips, then perhaps you should seek professional help from a debt councillor or financial planner.
Tags: credit card, wallet, rewards, moderation, credit cards credit, debts, interest charges, personal loans, purse, explosion, mortgages, balance transfers, getting money, separation anxiety, loyalty programs, mobile phone bills