Debt is a fact of life for many people, and it can have a profound impact on their financial well-being. Understanding your debt and taking steps to manage it can be life-changing. In order to maintain proper financial health, it’s vital to keep track of all the debt that you’re currently holding onto so that you can better manage it, and be able to live your life stress-free.
The last thing that you want is to feel stuck in your current financial situation. Prioritizing your debt can allow you to avoid the feelings of stress and anxiety that come with having to live in an unpredictable financial situation. Continue reading to learn how your debt can change your life, as well as some tips on how to take control of your finances.
Different Types of Debt
Debt exists in many forms and can greatly impact your financial health – whether it be credit card debt, school loans, mortgages, and car loans to name a few. It’s important to understand what the different types of debt are so that you can better manage your finances and stay ahead of it, while working to build your wealth.
Many may automatically assume that debt is bad, but there is actually such a thing as good debt too. Good debt allows you to better manage your finances and build your wealth over time. Taking out a mortgage or even student loans provide more value in the long run. Mortgages are considered to be good debt because it’s secured by the value of your house, allowing lenders to see your ability to stay on top of mortgage payments and maintain good credit. In addition, taking out a mortgage allows you to invest in your home as an asset rather than paying monthly dues to a landlord where you’ll never see a return on your investment.
Student loans are also considered to be good debt, as they allow you to get an education that can help you land a higher paying job at the start of your career. While student loans and mortgages are considered to be good debt, it’s important to note that while this is historically true, it’s how you go about paying off these types of loans that will determine your financial status. When applying for student loans, it’s essential to make sure that you also have a plan to pay off those student loans once you’re out of school. You want to make sure that between your other loans, you’re not overextending yourself, as that can lead to your debt snowballing and becoming too much to handle.
Consequences of Poor Debt Management
If you don’t pay attention to the debt that you currently owe and continue to spend, you’ll not only stretch yourself thin, but you’ll also cause yourself to eventually go further into debt. This will also lead you to not have as much money on hand as you need to cover your expenses. It’s essential to avoid getting behind on paying your debt off as it can lead to larger issues and cause your financial stability to change while also bringing more stress into your life.
One of the worst things to do when it comes to poor debt management is allowing yourself to fall behind on your different payments. Falling behind on your payments can cause numerous issues and lead you down a dangerous path. Missing these payments can lead to dealing with late fees and result in your credit score decreasing. If your credit score takes a hit as a result of missed payments, it can create larger issues for you, such as making it more difficult to take out a loan in the future.
Credit cards are a great way to avoid having to carry cash, but they can also cause you to potentially overspend as you don’t have to pay up front for what you buy. If you overspend one month, you put yourself at risk to be unable to pay off that amount and also are put at risk to have your interest on your credit card increase. If you own a credit card and begin to have to pay interest on the amount you owe, it’ll make it much more difficult to remain financially stable as you’re not only having to worry about your recurring debts such as student loans and car payments, but now you also have to worry about going into debt on your credit card. The consequences of missing payments or overspending can be detrimental to not only your finances, but also your personal well-being. This will bring more stress into your life, having to find ways to not only afford to live, but also pay off what you owe.
Improving Debt Management
There are many steps that you can take to start to improve your debt management skills, but it’s important to start sooner rather than later. Some steps to consider when working to improve your money management skills include looking at your current credit report, keeping track of your spending, or even looking for opportunities for loans to consolidate debt. Consolidating your debt allows you to bundle existing unsecured loans into a single loan that may offer a lower interest rate, saving you hundreds to thousands of dollars while boosting your credit score and making monthly payments more convenient. That being said, there may be up-front costs when bundling your loans into a single debt consolidation loan.
In addition to consolidating your debt, creating a budget is another great way to manage your money and keep better track of your monthly expenses. When creating a budget, write down your monthly income, your necessary expenses, your discretionary expenses, as well as setting aside some money per month for savings and emergencies. Budgets should be used as a tool to help keep you on track and motivate you to work towards financial freedom. A budget should be realistic and something that you can be consistent with. If you create a budget that is too strict, it may be more difficult to stick to, and you will be more susceptible to going over your budget. Improving your debt management skills takes time and practice, but if you’re consistent in your budgeting, you’ll be able to have more control of your finances, allowing you to build a better future.