Personal Debt Management
When one says, “debt” it always connotes of negativity. But, in reality, there are plenty of positive aspects of personal debts. We have to realize that only few of us could purchase a home, car, or attend college without any sort of “credit”. But, you have to make debt work for you, not against you!
Before taking on any personal debt, you need to understand the terms ﬁrst. Of course, it needs to be paid at a certain time table and it goes with an interest cost. But beyond paying the amount, terms of each lender widely varies. And it will be dependent on the type of debt or loan you are taking.
HOME MORTGAGES. – You need to check your capability of payment ﬁrst, how much can you shell out upfront and how much the monthly amortization will be. Make sure you understand the portion of your principal payment and the corresponding monthly interest cost, and for our escrow account. If you will pay more than the minimum amount, you have the option to choose whether the extra goes to the principal, extending your payments or the escrow. But you have to make sure that your lender have applied your payments properly.
CREDIT CARDS. – Make sure that you understand the terms and conditions of your credit cards. And BE RESPONSIBLE in using your card for each purchase. It is really tempting to use your card on all your purchases, remember that there is a high-inters cost that goes with it if you falter in paying on time. And the amount compounds! There are cases that credit card users pay more than the interest from the purchase itself. Paying oﬀ in full on the monthly credit card balance should be your ultimate goal. If you can’t, then put limit on all your purchases.
Also, beware with some of the oﬀers you receive in the mail. There are credit card providers that will mail you checks that can easily be used. BUT, usage of these checks are considered as “cash advance”, which is often has the higher interest costs than the already high cost of regular credit card purchases. If you receive these checks, shred or better yet, burn them immediately to avoid being tempted in using them!
CAR LOANS. – There are diﬀerent loan terms when you apply for a car loan. Though increasing the loan term usually decreases the monthly payments, if you can, try to take the shortest car loan term if possible. Most of the time, car loan terms which is sometimes can go as long as six (6) years, result in owing more money than the car actually worth at some point in your loan. Evidently, it is no longer a practical consideration to take on long-term car loan.