How to Manage Personal Debt

Personal debt is often unavoidable in today's society. Most people have to take loans to finance essential things like education, vehicles and housing. It's scary and upsetting when most of your monthly income is spent paying off money you owe, but there are ways to manage personal debt with less stress.

Instructions

Difficulty: Moderate

Manage Your Personal Debt

1. Consolidate any student loans for lower payments. In most cases, consolidation brings down the interest rate on your older loans, but also extends the time it takes for you to pay them off. There may be added benefits to consolidation if you do it during your grace period.
2. List your average payments, and set up a personal budget. When you add up your expenses, it's always better to round amounts up and to set aside too much money than to come up short. Remember to include your living expenses, like rent, gas and electric bills, with your debt payments.
3. Cut excess spending out of your lifestyle. There are simple ways to reduce your expenses, like making coffee at home in the morning instead of buying it on the way to work every day. Lots of little changes can lead to big savings over time.
4. Get a credit card that matches your spending habits. If you want to have a month-to-month balance, you need a low-rate card, but if you pay your card off every month, you should look for one with low fees. You should avoid using a credit card as much as possible because it does add to your personal debt.
5. Meet with a financial adviser. These counselors can help you create a long-term plan to get out of debt and stay out. Some non-profit groups have free debt counseling available to the public.

Tips & Warnings

• You don't need to use a credit card to build good credit. Paying your student loans and telephone bill on time each month will build your credit ranking, without forcing you to take on new debt.
• You may want to set up your home to be more energy efficient to save on your electric bill. For example, compact, fluorescent light bulbs are a bit more expensive than regular ones, but they last longer and use less energy, saving more in the long run.
• Avoid taking loans with low rates that increase dramatically after a few years.
• Don't spend more money than you make. Hold off on taking out an expensive, long-term loan to finance a new sports car until later in your career.
• Never get a new credit card with the sole intention of using it to manage your other debts.