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

7 Tips to Avoid Debt

Debt

“When you get in debt you become a slave.”
-Andrew Jackson

Getting into debt is easy enough. If you don’t avoid the following spending habits, sooner or later, you will be in debt beyond your control.


1. Spending more than your earnings: This is surely the quickest way to get into debt. Imagine you earn $5,000 and you spend $5500 in a month.

2. Keeping up with the Joneses: You always want to be at par or better than your neighbor. When your neighbor changes to a more expensive car you also want to do the same without thinking of your limited resources.

3. Materialistic: Get the latest mobile phone, change your living room settee set and replace your TV to the latest model. You do it by hire-purchase, but the total amount is more than your monthly budget.

4. Gambling: Nobody can be a winner in the long run. You are motivated by greed. This bad habit will drown you into a sea of debt by borrowing more and more money. You think you will make your money back in the next bet.

5. Get-rich-quick scheme: Do not be gullible enough to listen to quick and huge returns for an investment. It is always too good to be true. Don’t borrow from your friends and relatives to invest and think that you are guaranteed to receive your investment and profit in return quickly.

6. Wrong use of credit cards: Pay your credit bills fully and promptly. Don’t pay the minimum amount or sign up for a zero-interest installment plan to make purchases of big-ticket items. You will snowball your debt way beyond your means to settle and you end up as a bankrupt.

7. As a guarantor: You can’t be kind in this way. You will regret it when your good friend defaults the loan and you have to inherit the debt because you can’t even locate him. He has disappeared into thin air.


Be happy to enjoy what you have. A debt-free life is a carefree life.