Debt Management Overview
Financial Tips

1. The general household seems to have accumulated plenty of credit card debt. The average per family tends to hover at about $8,000 in card debt with a credit card interest rate around 15% or so.

2. There is such a thing as good or acceptable debt. A mortgage, a college loan, and/or a car loan may very well be acceptable and many times (if not always) necessary. However, you still need to be responsible about living beyond your needs. It's also wise to look for a very good rate on loans.

3. And of course there is plenty of bad debt that can be had. The bad debt usually falls in the credit card arena. People use it to pay for food at restaurants, general home supplies and other small items that would be better handled using cash. You can safely use your card to make such purchases as long as you pay off the balance each month or make a sizable payment to get it back to a zero balance as soon as possible. Don't look at the card as disposable cash, but as serious revolving credit loan. If you don't have the cash to cover the monthly charges, then assess your budget and cut your spending.

When credit card debt gets overwhelming, sometimes a regular loan, a debt consolidation loan, or even an equity loan may help manage debt. If you go that route, resist the temptation to spend yet more. Otherwise you may find yourself in financial trouble later on. Be well aware of how much you are spending and what you are spending your money on. Resist purchasing items that you don't need or can't afford. Credit cards require discipline on your part.

4. Pay the highest interest debts first and as quickly as is reasonably possible. After all, most of your money is being wasted on your highest interest type debt. Then proceed to the next highest interest bill after paying off the first.

However, don't be in a hurry to pay off your mortgage when you have other high interest debt to cover. Remember, your house is building equity when other loans and credit cards are not. Also home loan interest is tax deductible. Home refinancing can be your best option if the rates have dropped 1½% or more and providing that you are not moving in the next 2 years. Moving sooner will cause whatever gain you got out of refinancing to be lost to the expense of processing the new mortgage and closing points (if there are any). It takes a number of payments over time before the savings put you past the break even point.

5. Watch out for the minimum payment amount on credit cards. So many people get stuck in that rut. The credit card issuers love it when you make payment after payment covering just the minimum. A plan like that will have you paying mostly interest charges and the real principle part of the debt takes forever to get reduced. If you can't pay off the whole credit card balance, at least make a payment double or triple the minimum payment amount to make a sizable dent on the debt.

6. Don't be careless about debt thinking you can simply borrow against your home or 401(k). While those are ways to control debt, use them as a last resort. A regular loan or a debt consolidation can help out in this regard. A consolidation loan will safe-guard your home and/or 401(k). Taking on more irresponsible debt once you refinance your high interest cards and loans is visibly self-defeating.

7. Save money! That can't be said enough. A large group of families and individuals alike do not save nearly enough. It's usually due to careless spending. Try to put away a portion of your pay check each week into a savings account or a safe investment fund. Make it your goal to have 3 to 6 months of cash reserves that will cover your daily expenses should you find yourself unemployed or run into an emergency. If your car happens to experience a major brake-down or some other emergency comes up, you won't be left high and dry.

8. Should you find yourself over-extended, get debt help for managing your credit bills before finding yourself in serious financial trouble. Don't wait until your bills exceed your income. Debt consolidation help is that line of defense against having too much debt.