Saturday, July 14, 2007

Five Helpful Tips for Debt Management

By Greg Mischio

Some people say that money makes the world go round. But if you're heavily in debt, the only thing money does is make your head spin. The following five tried and true tips can help you regain your financial bearings.

Keep track of the greenback


If you're on the hunt for ways to save money, start acting like a hunter: Track your debts. Keep a budget, tabulating all the areas where you spend money. From that point, it's easier to prioritize and decide where to cut back.


Higher interest rate, higher priority


If you've got a lot of debt, chances are that it's spread out over numerous types of loans and credit cards. Your top priority is to pay off the balances on whatever card or loan carries the highest interest rate. All those high rates-even if they're on smaller balances-add up to one hefty payment.

Transform bad debt into good debt


Not all debt is created equal. There are good debts, such as loans for education and home mortgages. These debts increase in value as you pay down the principal on your loan. A college education, for example, boosts your earning power. And a home appreciates as you pay down your mortgage. Try to consolidate the bulk of your loans into these types of vehicles.

The minimum costs you the max


Most credit cards require only a minimum monthly payment. However, by paying more than the minimum, you increasingly chip away at the principal each month. You'll pay off your debt faster and reduce your long-term interest.

There's no debate: consolidate


Remember all that we've mentioned about paying off high-interest debt and using good loans to get ahead? It all comes home to roost when you use a home equity loan or mortgage refinance for debt consolidation. You move from high-interest credit card debt to one loan with a lower, tax deductible interest rate.


If you're committed to follow these five simple steps, give yourself a high five. You'll soon be working your way out of debt, saving hundreds-and perhaps thousands-of five dollar bills in the process.

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