Debts On Ice

This article provides a brief overview of the top 10 things you need to know about managing your debts in order to pay them off quickly and efficiently.  After reading through this list, you will be more knowledgeable about the "need to knows" of debt management such as why some debt is good, what bad debt is, the minimum trap, and why paying your mortage too quick is bad.

Top 10 Need to Know Facts About Managing Debts

1. People are loaded with credit card debt
The average household with at least one credit card has nearly £6,500 in credit-card debt, according to CardWeb.com, and the average interest rate runs in the mid- to high teens at any given time.

2. Some debt is good.
Borrowing for a home or university usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

3. Some debt is bad.
Don't use a credit card to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there's something you really want, but it's expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it's due and avoid interest charges.

4. Get a handle on your spending
Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

5. Pay off your highest-rate debts first
The key to getting out of debt efficiently is first to pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.

6. Don't fall into the minimum trap
If you just pay the minimum due on credit-card bills, you'll barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you'll end up spending thousands of pounds more than the original amount you charged.

7. Watch where you borrow
It may be convenient to borrow against your home to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement.

8. Expect the unexpected
Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a home emergency or damaged car can seriously upset your finances.

9. Don't be so quick to pay down your mortgage
Don't pour all your cash into paying off a mortgage if you have other debt. Mortgages tend to have lower interest rates than other debt, and you may deduct the interest you pay on a mortgage loan. (If your mortgage has a high rate and you want to lower your monthly payments, consider refinancing.)

10. Get help as soon as you need it
If you have more debt than you can manage, get help before your debt breaks your back. Contact us today for free to talk about solutions to solving your debt problems.