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The problem with debt management talk is that it is much easier said than done. There are so many people who come up with advises on what should be done and what should not be done. The truth is this; debt management is not an easy task. It requires sacrifice and consistency in order to attain a positive result.
To determine how deep in debt you are, you will have to find what your debt – income ratio is. This ratio will present you with the extent at which you are in debt. The result is presented to you as a percentage of your income. A percentage of 50 and above is terrible news. It means that your income will not cover your debts; it also indicates that you might not be privileged to obtain loans except you pay very high interest rate.
The first step in managing your debt is to stop applying for new credits. A 50% and above percentage in your income – debt ratio means that 50% of your income goes into paying off debts. This means that all purchases made with credit card has to end. You have only 50% of your income available to you; that means you will have to cut down on your expenses. The 50% will not be enough to cover your daily needs but you have to figure a way around it. Luxuries and every item that is not a necessity should cease immediately. This will be your new lifestyle until you have successful brought the ratio down to 30%.
With this new percentage, you can take on new credits. You will get a better interest rate with your new debt – income ratio. This new credit should be used wisely and primarily for clearing off old debts. This approach will help increase your credit score once again relieve you from the heavy burden of debt.
Having risen above the debts, steadily watch your debt – income ratio and ensure that it remains within a manageable ratio. Learn from your past mistakes and manage your finances better in future.
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One way to manage your debt is to make a budget. That way you can keep track of your income and expenses. A budget is a document that forecasts the financial position and results of a business. A budget is an estimation of income and anticipated financial results.
There are a number of advantages to creating a budget. We’ve explored the top four benefits below:
This is probably the biggest benefit of budgeting. Budgeting allows you to dictate the manner in which you spend your money. When you make a budget, you control your money, as opposed to it being the other way round. Instead of having to suddenly adjust to having no money for certain things because you lack the funds, you always have the money you need, because you planned ahead.
Budgeting allows you to focus on your goals. In other words, it stops you form spending money on unnecessary items or things. You will only try to spend money on items or services that help you attain your financial goals. In other words, it is a good way of ensuring that you make ends meet; and identify which items you need to spend money on.
Budgeting allows you to keep track of your money. You know exactly how much money is coming in and how much is going out. You also get to understand where your money is coming from and what you are spending it on. This way, at the end of the month, you no longer have to wonder where all your money went or what you spent it on. It enables you to know which items you can afford and those that you can do without. This way, you will always allocate your funds to those items that you really need.
A budget is a document where you have to divide your savings and expenditures into different categories. At the end of the budgeting process, you will finally understand which side (either the expenditures or the savings) takes up most of your money. This way, you will be able to identify problem areas and possibly try to work on them.
The budgeting process makes it possible for you to save or put away some money.