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Debt Management 101

Jul 16, 2008
When many people think of debt management, they think of rearranging their budget so that they can pay off debts. But there is more to it than that. In fact, debt management is most effective when it's done before debts get out of hand.

Managing debt successfully is nothing more than maintaining debts at a safe and controllable level. People who manage their debt well do not accept more debt than they know that they can reasonably handle. The balances on their credit cards will be paid off every month and they will save money to finish paying for loans quickly.

How to Manage Debt

* Find a good interest rate when going into debt for essential purchases like a car or house so that your interest payments will stay low. Loans can be paid off before it is necessary if, on a monthly basis, you pay more than your payment plan requires.

* Shop around for credit cards as well. They are not all created equal. Some have higher interest rates than others, and some charge annual fees while others do not. If possible, get a card that offers cash back on purchases.

* Don't have more than one or two credit cards. If you have lots of credit cards, there will be more temptation and opportunity to get into debt. A person who is managing their debt responsibly will not need access to any more than one or two credit cards.

* Whenever possible, don't use cash advances. If, in some kind of emergency, you need cash right away, be sure that you pay back everything as soon as you can because cash advances tend to come with extra high interest rates.

When Debt Becomes Uncontrollable

One of the most important aspects of debt management is knowing when you're getting into too much debt. People often do not realize that they're in too deep until their debt has become completely unmanageable, making it much more difficult to get back on track. By recognizing when debt levels are getting too high, you can retain control of your finances.

Early signs that you're getting into too much debt include the following:

* Paying the minimum monthly payment has become difficult.

* You make everyday purchases with credit cards and leave a running balance on your account.

* Your monthly payments are less than your total monthly charges.

* You are close to reaching your credit limit.

If you find that you are heading toward too much debt, taking action quickly could save you a lot of trouble - as well as a lot of money. By recognizing the early signs of debt overload and paying debt off as quickly as possible, you could regain control over your finances before you know it.
About the Author
Consolidation isn't the only way to get out of debt. Another effective method to speed up paying off debt is to snowball credit bills. Learn how the snowball method works on the Debtopedia website at http://www.debtopedia.com
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