The total consumer debt for Americans was to top $4 trillion by the end of 2018, translating to about 26% of individual annual income, according to CNBC. This can be compared to the UK, where the total combined debt of British households stood at €428 billion in the third quarter of 2018. These numbers illustrate the state of debt across the globe. Individuals are battling daily to stay on top of rising debts and make all necessary payments on time so as to preserve their credit score. This has led many people to look into alternative ways to cut costs in order to save extra money to service their loans. These measures have come a long way towards bridging the debt gap, but there is still a lot more you can do to deal with debt better.
Good Or Bad Debt?
Most of us, if not all of us, will have debt at some point in our lives. Usually, debt starts early, with credit card debt accumulated early in college. This eventually grows with car loans and student loans. Debt is not intrinsically bad in itself, which is why there is the necessity to differentiate between good and bad debt. Essentially, bad debt refers to a loan acquired to purchase or service a liability: basically, the money acquired doesn’t grow once you’ve spent it. An example is when you get in debt to buy a bigger TV you didn’t need, or a pair of designer shoes you can’t afford. Good debt, on the other hand, refers to a loan that helps you grow – it is money you invest in an asset. For example, the money you borrow to start a business or a personal loan you take out to renovate your home before selling it. However, to access these loans, it’s important to have a good credit score and a good debt-to-income ratio. This is why debt management is so important.
Keep Track Of Your Debt
Knowing how much debt you have helps you to stay on top of payments. It’s important to keep a list of your debts that includes the creditor, the total amount of debt, the monthly repayments and the due date. If you are unsure of any debts, you can consult your credit report, which should highlight all your debt. Once you have a complete list set out, it will be easier to gauge the extent of your debt and plan for it accordingly. It is important to refer to this list as you pay your bills, and also to keep updating it as your debt amount changes.
Have A Plan For Debt Repayment
It’s important to rank your debt. This will allow you to pay off your high-interest rate debt first. Your plan should be focused on getting the worst debts down to zero first. This should be done before you start dealing with anything else. To make repayment of debts easier, consider getting extra money to pay off your debts like working online or a side job. As you pay one debt at a time, don’t forget to build savings, however little they may seem.
It is almost impossible to live in the modern world with no debts. While you don’t want to find yourself in a cycle of debt, what matters most is being able to manage your debt appropriately while focusing more on making smart financial decisions like saving and investing wisely.