7 Effective Ways to Manage Your Debt and Boost Your Creditworthiness

A man in debt is so far a slave. ~Ralph Waldo Emerson


Standard and Poor's has downgraded the U.S. credit rating for the first time ever from AAA to AA+. S and P said it lowered the rating because the deficit reduction plan Congress passed on Tuesday did not go far enough to stabilize the country's debt situation.


On a personal level, how do you manage your debt and avoid erosion of your credit rating? Here are 7 simple ways to do it:

1. Monthly repayments to be included in your budget: It is imperative to factor in all loan repayments into your monthly budget because it is not an optional item. You have to plan for it and you work your plan.

2. Timely payment: Do not be late to make your monthly payments. If you do, it will impact your credit rating negatively. You don’t go to work late, right?

3. Do not skip a single payment: It is a very serious matter to skip even one payment. You are sending a signal to your creditors that something is not right and you are in financial trouble. It will negatively affect your credit rating even further. It’s like you are missing in action for one day and everyone is worried about you.

4. Avoid incurring more debt: At this critical stage, avoid getting into any more debt than you can possibly manage. The most important thing is to get rid of all debt as soon as possible. Curb your wants.

5. Cut spending: While you are in debt, go for an austerity drive. Look into your spending pattern and cut unnecessary items such as entertainment.

6. Look for new income streams: It is also wise to look for additional sources of income. Can you turn your hobby such as photography to be a freelance photographer?

7. Be responsible: The worst thing you can do is to jeopardize your credit rating by not communicating with your creditor when you are unable to meet payments. Go and negotiate with your creditors to reduce the monthly payment, waive a few monthly payments or reach a mutually agreeable solution.

What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience? ~Adam Smith