Managing Debt – Solutions to Keep You Debt Free

By on | General Debt & Loan Consolidation Information.

Managing Debt: Solutions to Keep You Debt Free

Mevish Jaffer

If you are one of the millions of people in the U.S. who is buried under a mountain of debt, then perhaps it’s time to understand the importance of getting out of debt. While it is easier said than done, the truth is that managing your finances effectively is the first step to get out of debt. However, many people are uncertain when it comes to effective debt management, which is why it is important to educate yourself on debt solutions that can help to restore your financial independence.

Computing Your Debt to Income Ratio – Why it’s important

Your net worth and total debt are the two basic components which are used to calculate your debt to income ratio. Your total net worth can include things such as your monthly net income, overtime pay, and any bonuses earned. Your total debt consists of expenses including your mortgage loan, credit cards, car payment, child support, alimony, or any other type of outstanding debt in your name. By dividing your total monthly debt expenses by your total monthly income, you end up with your debt to income ratio.

This particular ratio is an extremely important factor to consider when it comes to managing and staying out of debt, as well as assessing the status of your overall credit history. The general rule of thumb for getting out of debt is to spend less money than you earn. Therefore, if you are someone who spends more than what you earn; your debt to income ratio will be higher. Consequently, individuals with a high debt to income ratio experience hardship when it comes to financing major purchases, such as that of a home or car.

Debt Management Solutions – Getting debt help

When most debtors find themselves at the end of their rope, they can often be compelled to file for bankruptcy however, it is important to be aware of the alternatives, as bankruptcy is not always the best solution to get out of debt. In fact, there are several financial management tips that can help you avoid drowning in a pool of unwanted debt.

One of the ways to effectively manage your debt is through debt consolidation. There are many debt consolidation programs that enable you to take all of your debt and combine it into a single loan, at a lower payment. In addition to saving money every month on your loan payment, there are also other advantages that go along with opting for debt consolidation, including:

  • The elimination or reduction of accrued interest and penalty charges
  • One monthly payment as opposed to making several payments to multiple lenders
  • Lower interest rates
  • Not having to be pestered by daily collection calls
  • The ability to rebuild your credit

Credit counseling agencies and debt management consultants usually help debtors get out of financial difficulty through customized debt management plans. However, in addition to a DMP, it’s also important to practice your own debt management techniques in order to get some relief from your financial burdens.

For example, you can keep a thorough record of all your bills, ensure that your payments reach lenders in a timely manner, avoid taking on any new loans, check the status of your credit card or loan statement for accuracy and correct any discrepancies that may exist, commit to check your credit report annually and lastly create a budget plan that will enable you to effectively manage your expenses without putting you further into debt. While getting of out of debt may be a struggle for you initially, it’s always important to keep the bigger picture in mind, which in this case is finally achieving financial freedom!