Debt Management - Preparing For the Holidays

This may seem like a scrooge like subject as we enter the holiday season, but I believe it is important to revisit it before stampeding out for Black Friday sales and/or Christmas shopping. 

What is debt management? 

The average cost of a car, house, or college education has skyrocketed, so typical consumers most often borrow money to fund these purchases. Throw in a handful of credit cards, and it's no wonder that the average consumer is carrying more debt than ever before. With greater credit needs comes a greater need for debt management. 

Good debt management ensures that you will have credit when you need it, make wise borrowing decisions, and avoid disaster if you become overextended.. 

Establishing credit 

You must first establish a credit record if you want to have ready access to loans when you need them. You establish a credit record by borrowing money from a lender who reports to a credit bureau. Thinking small and taking advantage of special credit deals is one way to establish a credit record. Increasing your down payment, or posting collateral, is another way of boost a lender's confidence to work with you. Paying your obligations as agreed and on time is vitally important.  

Borrowing options

You wouldn't try to buy a house using proceeds from a student loan, nor would you try to finance your college education with a credit card. Thus, knowing what borrowing options are available to you is important when shopping for credit. Some types of loans carry lower interest rates, some have tax-deductible interest, some are subsidized by government entities, and still others have special repayment terms. As such, find the loan that best suits your needs, and be sure you have examined all your choices.  

Credit reports 

As mentioned previously, establishing and maintaining a good credit record makes you an attractive customer for lenders. You will get the best deals and have access to the largest number of credit options if your good credit record is maintained.  

Reducing the cost of debt 

It is good to periodically evaluate your debt situation and see if you can reduce your costs. Possible ways to reduce the cost of debt: Refinancing loans at  lower interest rates, use home equity loans to pay off high interest loans and credit card balances, or transfer your credit card balances to cards with lower rates. 

Other options include prepaying debts and liquidating assets to pay off loans. You may also seek to reduce or eliminate noninterest costs related to borrowing, such as private mortgage insurance (PMI). If you have kept your mortgage payments current and built up sufficient equity in your house, you may be able to cancel your PMI coverage. Many of these options have tradeoffs. For more information, see  a financial professional.  

Options when you can't meet your financial obligations 

You should never incur more debt than you can afford. However, if this occurs, then you need to take action quickly. The longer you wait, then the  more severe your financial troubles are likely to become. 

Increasing your income stream may be an option. If not, there are things you can do to reduce your monthly obligations. Reducing the cost of debt, or negotiating directly with your creditors may enable you to lower monthly payments. If you need professional advice, you can contact a nonprofit credit counseling service, such as Consumer Credit Counseling Services, which can often arrange an affordable repayment plan for you. If things are really out of control, you may want to consult an attorney about bankruptcy. You should face up to your financial difficulties and take steps to resolve them.


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