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.
How do you determine if you have a lot of debt?
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.
How do you reduce your debt?
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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