Manage Debt
Once you have credit cards in your wallet, you
need to manage debt responsibly to build and
protect your credit record and score.
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The Do's And Don'ts Of
Debt Management
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| Do:
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- Seek credit cards and loans
with the lowest interest rates.
- Stay within your credit limit.
- Track your charges online.
- Pay charge accounts in full monthly, if possible.
- Use Web-based automatic bill-pay programs to ensure payments are on time.
- Save your receipts and compare
them to the charges listed on
your statement.
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| Don't:
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- Use credit to buy things you
cannot afford.
- Let the total monthly debt payments (less mortgage or rent)
exceed 20 percent of your net income.
- Apply for too many credit
cards. Remember: three lines of
credit are enough.
- Give in to impulse buying.
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Stop Adding New Debt
When debt is a problem, the first step toward a solution is to
stop adding to your existing balances. It may be helpful to remove
your credit cards from your wallet and place them in a secure but less
convenient location so you will be less likely to use them.
Review your most recent credit card statements to identify any recurring
monthly charges on your cards. Cancel those purchases that are not essential,
such as subscriptions to entertainment services.
Use the Debt-Danger-Signals checklist to help you assess
if you are managing debt appropriately.
Develop And Follow A Monthly Budget Before
attempting to pay your debt in full, it is critical that you know
how much money you receive and where every dollar goes each month. Use the
Budget Work Sheet to take that important step.
It will help you identify opportunities to trim expenses, saving money that can
be used to pay down your balances. The easiest expenses to eliminate are flexible
expenses like dining out, clothing, gifts and entertainment.
As you examine your monthly income and spending, you should also consider
opportunities to increase your income — especially if you find your expenses
exceed your income. Even if it is only temporary, additional income will quicken
your return to financial health.
A budget or a spending plan, is a tool for
establishing financial control
and direction. It helps you:
- Track how you use your money each month and year.
- Avoid unnecessary spending.
- Prepare for unexpected expenses.
- Save for short-term goals and invest for long-term goals.
Several financial software programs are available to help you accomplish this
task. Utilizing this information will help you more wisely manage your income and
expenses to meet your financial goals.
Creating A Budget
Total every dollar you spend for a month and keep track of what you buy.
You may be surprised how much you spend and on what things.
- Assess your income and subtract your expenses. Gather pay stubs and other
income statements, check registers, bank statements, credit card statements or bills
and receipts. Divide your annual net income by 12 to determine monthly net income.
- Copy the Budget Work Sheet. Use it to record the amounts you plan to
spend for the month. Financial planning professionals generally recommend targeting
at least 10 percent to 15 percent of monthly net income for savings.
- Monitor your spending. Keep written records of your purchases and
payments. Record the amounts you actually spent for the month.
- Review your plan. Compare what you actually spent to the amounts you
planned to spend. How well did you do for the month? Did you have extra money
(net cash flow), or did you borrow money by using a credit card? Look for areas
that require special attention and reduce or eliminate expenses as needed. Review
your spending plan at least once each month.
- Adjust your plan. Adjust
expenses to reach your financial goals.
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Basic Money Management
Basic Money Management
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