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Understanding and managing your debt

8/7/2014

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By: Gordon Thomson
UNDERSTANDING AND MANAGING YOUR DEBT
Repairing your credit is more than just cleaning up your credit report; it is also about understanding and managing your debt.

Debt is simply the money you owe; it is an amount of money or other property that is owed by one person, organization or company. Getting into debt is very easy 

and maybe it is fun for some people as it might impress them. At first look, people are happy, they can buy without having cash, and they can buy a car even without having the budget etc. But they missed the crucial part; they will now live and drive this car for 3-7 years, make payments with high interest for something that may have lost its appeal.

Much like cholesterol; debts come in both good and bad versions. Debts can make your life easier or more difficult but however bad your debt problems, there is a solution. People and businesses who know how to handle debts and how to manage their credit can take advantage of debts while people, especially the youth, who do not have great knowledge in debt management and creating debt reduction plans often find themselves in trouble.

Sometimes there are good reasons to take on debt. For example, students take loans which are a good thing; this can help you get to a position to take advantage of low interest debt to finance a quality education.  The true test, however, is what you do with that almost forgotten debt once you graduate.


Buying a Home we all have to live somewhere, but if you are paying rent whether for an apartment or a single family home, you are in fact buying that property for your landlord.
The greatest gift you can give yourself and your family is to own you’re your own home and since it probably will be the biggest investment you ever make enter into the purchase with your eyes open and with intent to live there for a long time through the ups and downs of the market plus over time, that home is going to appreciate in value.

Taking on debt for business start-up can be healthy; it provides you with needed capital without exhausting your personal funds and allow you to take advantage of time of opportunity for growth.  BUT, you must have a clear plan on how you will use this capital and most importantly, how to pay it back. In many cases, debt is a part of the business success. 

If you can afford to pay cash and limit the risk of taking debts, do it!  Do not hesitate to pay by cash when you have the surplus funds. The problem is when you borrow money but do not use it productively.
More clearly, debts are good when you invest it and NOT simply spend it. Taking debts simply to spend it is where the problems start. Debts must be under control. You must know very well how to pay back your debts. 

Keep in mind one word: “Interest”. Interest is a magical tool, interest makes you rich or poor and creditors always use it to their advantage. Remember let the interest work FOR YOU instead of AGAINST YOU. 

Getting out of debt, repairing your credit and becoming debt free will require patience, commitment, and consistency. The most important part is to restructure the way you pay bills and set priorities.
If you have overused credit cards to buy luxuries instead of using cash you may find yourself overwhelmed by strung out payments on items you are no longer excited about.  Your new priority should be getting out from under these debts and avoiding new exciting luxuries.

The first advice to become debt free is to pay attention on how you are spending your money, the second advice is to summarize your debts and set a debt reduction plan.

Get a clear vision of what exactly your take home income is and analyze what your minimum outgoing expense budget is.  You can then begin to create a clear debt reduction plan by setting aside a fixed portion of your surplus for reducing your debt loan and increasing your credit score.


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    Author

    Gordon Thomson

    Contact me at:
    gordon@repaircredit4free.com

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