Your Debt Burdens
Most individuals have
debt of one kind or another. It may be a home mortgage, a credit card,
a student loan, an auto loan or some other form of loan. Using debt as
part of an overall financial strategy can be a good thing. Debt becomes
a bad thing when you have too much of it, have the wrong kinds or when
its presence causes undue anxiety or bad behavior. Here are some ideas
to help you make sure you are controlling your debt and not the other
for using debt. Borrow money for things that provide long-term and
lasting value. Borrowing for college costs is probably good. Charging
another extravagant vacation on your credit card is probably not a good
use of debt.
Use the best type
of borrowing. Whether it is choosing a credit card or a home mortgage,
be sure the terms match up with your goals and how you manage your finances.
If you pay every credit card bill in full and do not incur any finance
charges, it may be OK to have a card that has a high interest rate (you
avoid it with timely payments) but offers rewards for use (like miles
or money back) or has no annual fee. On the other hand, if you carry over
balances and pay finance charges, the interest rate you pay becomes more
If you are considering
a mortgage, the type you choose (fixed or adjustable) will affect the
interest rate. Choose one that matches you behavior. If you plan to sell
your house soon, you may want an Adjustable Rate Mortgage (ARM) with a
lower interest rate. If you plan to stay in the home or cannot afford any
increase in payments if interest rates rise, consider a long-term fixed
cost borrowing. If your existing debt has a high interest rate, get
rid of that form of debt. Determine if you can convert it to another type
of debt with a lower rate. If you are paying interest on your credit card
balances, find a card that offers a lower rate, but watch out for "teaser"
rates. If you have equity in your home, you may be able to use a home
equity loan to consolidate all your debts at a lower rate.
Pay down your debt.
This can be a difficult step for many. Incurring interest charges you
cannot afford or you do not want is not a good use of your money. Find
ways to pay down what you owe. Pay more than the minimum due on credit
cards. Do not buy that piece of clothing you really do not need or take
a fancy trip when a visit with family would be just as enjoyable. Ultimately,
paying down debt takes discipline and sacrifice.
What if you cannot
pay your bills? This is when you should get help. First, stop incurring
more debt - quit using or destroy your credit cards. Then, work with your
creditors. You may be able to work out a payment schedule. Explain your
situation and that you want to pay what you owe. They may be able to help.
If not, at least you have tried.
Do not bounce checks.
In some states, it is a worse offense to write a bad check than it is
to not pay your debt. In addition, you may be charged for the bad check.
It looks very bad to a creditor if your check bounces.
help. There are several organizations available that help individuals
when all else fails. The Consumer Credit Counseling Service is one of
those agencies. They can help you create a plan to work your way out of
debt. Look in your phone book for a local office. Their service is free
and has helped thousands. Be very wary of organizations that offer to
fix your credit rating or want you to pay them a fee to get you out of
debt easily. If their "pitch" sounds too good to be true, it probably
is too good to be true.