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Top Tips On Effective Debt Management

Aug 17, 2007
Debt management is applicable to everyone. Does not matter if you are rich or poor. You cannot eliminate debt as borrowing is a necessity for people to have access to products and services which they need but do not have ready cash to acquire.

A debt is an obligation that should be paid and be good in managing his debts. Managing debts would include the ability to know how much a person owes and from where he would get the money to pay such debts.

For good debt management, a person must be aware of the total debts he has to make to pay off. Unfortunately, there are people who don't practice good debt management and they keep borrowing money without being able to monitor how much they already owe people or the financial institutions.

Debt management means that at the time the loan was made, the borrower knows where he would be getting the money to pay the debt. This makes sense as there are times one needs the money to be put to good use but does not have the ready cash at that moment in time, but knows how he is going to repay the debt. A student loan is a very good example where getting a loan makes a lot of sense. The person must just note that as soon as he starts working, he must have a plan to pay it off.

People without a steady source of income should be discouraged from borrowing because there is a tendency for their debts to pile up without being paid at all. Unemployed people who resort to borrowing for their essential expenses like food and daily subsistence would borrow from another creditor to pay off a debt that is already due and demandable. The same thing happens to the second and the next loans after which it becomes a cycle.

A person who is indebted to someone should take an inventory of his assets that can be used to pay off his debts. There is no problem if the debtor is looking at a possible income that has not been realised yet. Such unpaid income can be considered an asset which can be used to pay his debts.

Debts are easily made but they are difficult to pay. Thus, every person should be careful when borrowing money from others. Make sure that you have something to pay for the debt like an incoming income or check, or assets that can be sold to pay off the debt.

Some people get indebted by virtue of loans which have varying interest rates. This means that aside from the principal amount borrowed, the debtors still have to pay for the interest rate. A person who borrowed $100 at ten percent interest rate per month will have to pay the principal plus the interest.

Some interest rates are based on the actual balance like if the debtor has already paid $20 then the interest rates would only be pegged on the balance of $80. However, there are some interest rates pegged at the original amount borrowed.

While being in debt is a natural thing, every person should learn how to manage his debt and how to stay out of debt if possible. One of the major factors why most people are indebted today is the misuse of credit cards.

Credit cards are those plastic cards that can be used to pay for almost any purchase even if you don't have cash. People find it easier to spend when using their cards because it is so easy to use them to get the things that you want. The problem is that most people fail to use their credit cards wisely and become indebted and are faced with legal actions for failing to pay their cards when they become due and demandable.

It is alright to borrow. Remember for good debt management, it is important to borrow wisely and know how you will settle the debts. Always be in control of the situation. Take charge of your debts to make sure they don't lead you to declaring insolvency or bankruptcy.
About the Author
Regina Maniam shares information on how to best manage debts. Responsible borrowing and being in control of debts are key to debt management. http://www.yourdebtreliefguide.com
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