Planning Ahead Unless you are a fortune-teller, you cant foresee what is going to happen in the future. Therefore, you should start preparing for the unexpected. It may sound pointless but the truth is that if you have enough savings you will be able to avoid getting in debt most of the time. In order to be prepared for what may happen, you should always make a budget and stick to it as tight as possible. Within the budget you need to include all your income and expenses, including your debt installments and an average of credit card payments. You should make a plan for reducing your debt progressively. If you can take a low interest loan to pay off your credit card debt, then you should make payments above the minimum in order to keep reducing your debt. You need to always pay at least a little more than the interest charged for financing. An excellent idea is to leave round numbers in your balance. For example if the overall debt is $2423.15 and the minimum payment is $380.57 then, you can pay exactly $423.15, so the amount you owe would be $2000, which is an amount easy to trace in the budget. Order your payments according to importance Even though the above idea is useful, you should always pay more than the minimum in your credit card balances. Moreover, you should pay as much as possible since credit cards carry the highest interest rates. First of all you should pay for essential services and expenses. But immediately after that you should try to cancel the highest interest debt. Though you should check the interest rates charged along with any other costs and fees. The usual priority order according to the interest rate charged is: Payday Loans and Cash Advance Loans, Credit Card Balances, Personal Loans, Car Loans, Home Equity Loans and Mortgage Loans. If feasible, you should try to get rid of the first ones as soon as possible without neglecting paying the others, especially those who are guaranteed by an asset such as mortgage loans and home equity loans. Consolidation Loans If you can request and get approved for a consolidation loan, the main problem would be solved. Youll use the money to cancel high interest debt like payday loans and credit card balances. Afterwards you should avoid incurring into more debt and you should always keep your budget balanced. After Debt Reduction After you get rid of your debt, or even when you have it under control you need to start putting some money aside in order to save for any unexpected event. This way, youll be able to avoid getting yourself into the vicious circle of debt again. If you ever need to use that money, make sure to rebuild your savings fast as soon as the unexpected events consequences have passed. |
