How to control High Interest Debt
Let us forst understand a few basics:
- Your net worth is your assets minus your liabilities.
- Liabilities are debts.
- The more debts you owe, the lower your net worth will be.
Also understand that whenever you have debts, you also pay for the interest, that’s why you lose more.
Controlling high interest debts is all about understanding the above pointers. People sign up for loans and it is understandable why they do so. Loans help create assets within a short period of time rather than waiting to build the capital and then buy. It’s hard to shell out cash immediately for a house or a car. That’s why debt is a tool that when used wisely can benefit the borrower. However, debt also poses certain threats to teh borrower if he fails to exercise discipline. The borrower must accept that a debt is still a debt and must be paid in due time.
the financial crisis arises when people don’t manage their money well. If they are unable to pay, they borrow again deepening the crisis. Thsi happens due to calamities and in many cases because of negligence.
Lets take a look at the known reasons of people getting into serious debt:
- Unemployment
- High cause of medical bills
- Settling divorce finances
- Spend-aholic or could not control spending
- Wasn’t able to save
- Not in the know on financial and credit matters
Once in debt, make it a priority to pay it back. At the same time it is also better to save for a rainy day. Here are some valuable pointers again:
- Budget your expenses and stick to it. Allot the amount on payday itself and When it’s payday itself and stay within those limits. Include your credit card bills in this.
- Save 10% of your salary for emergency. thsi should be available at any point in time for unexpected contingencies.
- While purchasing, practice restraint and look for bargain deals. Think, think, think before investing on something. Make sense of this investment practically before taking the final decision.
- If you have to borrow, understnd clearly the interest rate and the penalty fees. calculate the final burden you will have to bear and see if it is feasible considering your sources of income. If not, think about pstponing the purchase. In case you do go ahead and borrow, ascertain and set aside your monthly payment amount.
As far as possible, have just one or two credit cards. Too many credit cards raise your temptation to spend and this is not a ahealthy indication if you want to remain debt-free in the long run.
If you want to cut down on high credit card bills, you can choose to pay cash instead. Evry month you should decide a limit on your credit card spending and stick to that limit. Choose a card that offers the lowest interest rate so that in the event you do have to pay, your damages are the lowest possible. Dont fall prey to the selling strategies of credit card companies. They will give you a lot of freebies, but it is better to stay away from debts which you cannot afford to pay on time. And most importantly, pay bills on time. This is for you to avoid late charges, plus additional interests. If you dont, this will also have anegative impact on your credit ard history.
While choosing loans, look for the lowest interest rate. The interest that you save can be spent on other investments. The idea is to maximize your net worth by minimizing your liabilities and maximizing your assets. As long as you understand this and can dicipline yourself to achieve this objective, having a fair amount of repayable debt makes good business sense. think about it.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life. Downloand now
