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How To Develop Your Own Debt Reduction Plan

September 23, 2020 By editor Leave a Comment

Having a debt reduction plan will make it easier to get out of debt. After all, this is not something that you can accomplish overnight. Unless you won the lottery and you suddenly have the funds to pay off your debt in full – it will take some time to finish paying off your debts. Since it takes so long, you need to have a plan so you can follow it as you pay your debt each month. It guides you throughout the process and shows you the progress. That way, you can monitor your debt payments to ensure that you’re still on track.

If you look at the statistics, you’ll see that a lot of people are in need of their own debt reduction plan. Reports reveal that 56% of people have been carrying credit card debt for at least a year. While it’s not unusual for people to take more than a year to pay off their debts, it costs money. The longer it takes for you to completely pay off your credit card debt, the higher the interest rate that you have to pay.

This is why you need to have a plan. It will help you avoid paying so much towards your debts. The right debt relief plan will help you get out of debt faster. It will also help you save money while you do it.

Things to consider when creating a debt reduction plan

But the question is, how do you develop your own debt reduction plan? It’s not impossible to do it. But you have to know the right things to consider to make sure that it’s customized according to your specific situation. Otherwise, you might end up with a plan that you cannot commit to.

So what should you consider to create a personalized plan that will help you reduce your debts? You need to ask yourself these questions.

What debts do you owe?

It’s always smart to start with the problem. Before you come up with a solution you have to make sure that you completely understand what you are trying to solve. Sometimes, people realize that their debts are not hard to pay off after all. They just failed to understand the different types of debt that they owe. But once they got to know each of the debts and have them organized, it was easier to manage the debt properly. It was easier to identify the specific debt relief strategy that suits the type of credit that you borrowed.

What are your current expenses?

After the debts, you have to identify the other expenses that you spend on. After all, you still need to spend in order to survive. We live in a consumerist society. We need to buy things to make our lives comfortable.

Make a list of all the expenses that you have to meet each month. Is there a way to keep your monthly expenses down? Keep it to the basic necessities while you’re paying off your debts – if possible. The less you spend on expenses, the more you can contribute towards your debt payments. If you can pay more, you can reduce your debts at a faster rate.

What is your net income?

Once you’ve identified your expenses, focus on your income next. Make sure that you focus on your net income – not the gross income. That means you should base your plan on your income after taxes and other deductions.

When you have calculated your net income, can you increase what you earn each month? This is important in determining the debt reduction plan that you will create. The more you earn, the higher your debt payments will be.

There are many ways to increase your net income. You can check if your taxes are correct. Sometimes, failing to update your information makes you miss out on tax breaks. Or you can ask your employer for a raise. You even have the option to get another job – even a part-time one. Setting up another source of income will not just help with your debt reduction plan. It will also secure your financial position.

What debt solution suits your financial situation?

After answering all the other question, it’s time for you to check the debt relief options that will help reduce your debts. While all the debt solutions are effective, it’s important to choose the right option. When you use the right debt solution, it will make the monthly payments easier to meet. It will also get you out of debt the fastest – at least, as fast as your payment capabilities can handle. The information that you got about your debt and the income and expenses will help you find out how much you can afford to pay each month.

So what are the options that you have? If you have a good credit score, you can consolidate your debts through balance transfer or a debt consolidation loan. If you want to work with a professional. A debt management strategy or a debt settlement can be an option for you.

Why you need a debt reduction plan?

Some people may think that they don’t really need a debt reduction plan. Because they can just pay off their debts. They can afford it anyway.

But that’s not why you need this plan. Although you can afford your payments, there’s still a better way for you to pay off your debts. Why would you do it one way if there’s an option that will not just help you get out of debt. It can also allow you to enjoy certain benefits?

Because if you don’t know, there are three benefits to gain if you create a debt reduction plan.

To make your monthly payments affordable

The first reason is to help make your payment more affordable. If you remember, among the questions you have to answer to create this plan involves your income and expenses. You need that so you can determine your payment capabilities. Some people struggle with their debt paymnts because they just can afford it anymore. According to a report done by TransUnion, 4.64% of loans are now on some type of financial hardship by June of 2020.

While it helps to get yourslf under this program, it won’t really solve your debt problem. What you need is a plan that will help you pay off your debts on terms that you can afford. That’s what the debt reduction plan can help with.

To save on your debt payments

Another benefit to using this plan is you can save money on debt payments. There are many ways this can happen.

One is if you get a lower interest rate because of the new repayment plan. If you can also negotiate better terms, that can lower any fees and charges that you should have been paying.

Of course, paying off the debt fast is another way for you to save money on this. The faster you can pay it off, the less you have to pay towards the interest rate. And if you choose a balance transfer, you might even have to pay 0% interest. So make sure you understand your options so you can choose the right debt reduction plan that will suit your needs.

5 Money Management Principles To Keep Debt From Joining Your Retirement

September 20, 2020 By editor

We all need to learn money management principles. Why? Because it will help us handle our finances better. We’ll know how to make the right decisions when it comes to our finances. No matter what situation we land into, we can navigate it so we can take advantage of it. Believe it or not, all situations can lead to a financial victory if you know the principles that will help you manage your finances well.

Learning these principles actually comes at a good time because a lot of people have been struggling with their finances for some time now. One of the signs is their inability to prepare for retirement. They haven’t saved enough because they either have too much debt or they are not earning enough.

In 2019, not even half of American workers feel prepared for retirement. In fact, of those between the ages of 45 to 59 years old, only 42% of them feel prepared to retire. These are the people who are a few years from retirement. Why is it that majority of this age bracket is not prepared?

This is only one area that can improve if you know the right money management principles to apply in your life. You can strengthen your finances and secure your future if you can apply the right principles. You’ll find that a lot of things about your life will change for the better if your finances are in good shape.

5 important money management principles

If you want to improve your finances so your debt will not join your retirement, where will you start? What are the money management principles that you need to learn and implement in your life?

Here are 5 that you can start with.

Organize your finances

Admittedly, not everyone is organized. There are just some people who don’t mind having a bit of chaos or mess in their lives. But if you think about it, this should not apply to your finances. You need to organize it. At least, you have to if you want to completely control your finances. The only way to control your finances is if you know everything about it. Like if you’re updated on your current financial situation, you’ll know how to use it properly. It’s easier to know that information if your finances are organized.

Spend less than you earn

Another principle that you should learn is to spend less than what you earn. Living within your means is okay. But it won’t give you enough room in your finances to improve it. Like if you’re trying to pay off your debts or save up for retirement. You need to spend a lot less than what you earn so you can do that. The lower you spend compared to your income, the more you can use the extra money to put yourself in a better financial position.

So while you are organizing your finances, take a look at what you spend on. Look at the expenses that you can cut back on. If there’s anything that’s just wasting your money, make a decision to stop spending on it. Use it to improve your finances instead.

Make your money work for you

With the extra money that you have freed from your monthly budget, choose an amount that you can use. This is the amount that can work for you. This is one of the money management principles that a lot of people don’t understand. They don’t know that you can make your money work for you.

For instance, you can invest some of your money on stocks that will grow in value over time. Or you can save up enough money to renovate a part of your house. Maybe you can convert the unused shed in your backyard into an Airbnb or a small house. You can have it rented so you can earn from it. That is how you make your money work for you.

Diversify your income

Once you’ve figured out how you can make your money work for you, you’ve just tapped two money management principles. The second one is diversifying your income. Every time you set up your money to work for you, that’s one source of income. The more sources of income you can set up, the more you make your finances crisis-proof. That means if you lose your job tomorrow, you still have other sources of income to rely on. That can make your future secure. And it will make things easier for you to set up your retirement so it will be a comfortable one.

Have enough emergency funds

The last of the money management principles that you should implement involves your emergency fund. It’s great that you’ve organized your finances and you’ve managed to make your money work for you and set up several sources of income. But you need to make sure nothing ruins what you just set up. One emergency can destroy that. This is why you need to be ready with an emergency fund. You have to save up for it. Your emergency fund can shield your finances from any unexpected event. You can keep paying off your debt or saving for retirement if you have this fund.

How money management keeps debt from your retirement

The money management principles mentioned are all meant to help you get rid of your debt so you can save up for your retirement. To motivate you to stick to these principles, here are the specific ways that it can help.

Full control over your finances

It was previously mentioned that being organized is one of the things that you need to learn. What that does is to give you full control over your finances. When your finances are organized, you know how much you’re earning. You also know where it’s being spent. These are the two important information you need to make smart decisions about your finances.

Financial stability even during a crisis

Money management principles can also help you find financial stability – even in the midst of a crisis. The diversity in your income and the emergency fund should shield you effectively. These two can keep your finances from being destroyed.

Freedom from debt

Since you have full control over your finances, you can find it easier to get out of debt. You can shift your finances so you end up with more money to use for debt payments. The more you pay off each month, the faster you can get out of debt. That will not just bring you to debt freedom, it will also help you save money in the process.

Faster road to retirement

With your debt out of the way, you can now exhaust all efforts to save up for your retirement. According to a survey, 2 out of 3 40-something Americans have less than $100,000 invested for their retirement. That means they have a lot of savings to fill up before they can retire comfortably. If you want to expedite the process, use the money management principles. These can really help you reach your goals faster. If you can do that, you can enjoy retirement earlier.

3 Tips To Improve Credit Score Through Your Credit Card

September 17, 2020 By editor

Can you use your credit card to improve credit score? Absolutely!

Some people may not believe this is possible. After all, they think that credit cards are probably the ones that got you in a tough situation. Would really want to use it more so it can improve what it destroyed in the first place?

Young Japanese girl at cafe, while waiting using her smartphone and credit card to make an online payment

If you know what you’re doing, this is possible. Instead of letting your credit cards destroy your finances, you can use it for restoration. Learn how to use it properly. We are all used to using credit cards anyway. We can’t seem to stop using it even if it puts us in danger of having a lot of debts. In fact, data reveals that the average American owns 4 credit cards. With that many cards, it’s not hard for us to use it recklessly.

But we can learn to break bad habits. Since we are all used to credit cards, we have to. If we want to continue using it without endangering our finances, we have to become smart credit card users.

3 ways you can improve credit score using your credit card

Do you know what’s great about learning how to use credit cards wisely? You can improve credit score at the same time. By correctly the bad financial habits associated with your use of your cards, you’re also giving yourself a good credit score in the process.

So how can you use your credit cards specifically to boost your credit score?

Make timely payments

This is rule number 1 when you are using your credit card. Or if you want to borrow any form of debt. You have to be responsible when it comes to your payments. Make sure that you will not be late on any of your payments. If you are consistently late, that will reflect on your credit score badly. If you were trying to improve your credit score, you would have failed.

The payment behavior is usually a big percentage of your credit score. If you have just one delinquent account, that can pull your score down. While this is true for all types of debt, it’s credit cards that pose the highest risk of accumulating. And the average American also owes more than one. You can easily forget the due date until it’s right upon you. So you have to be certain that you are keeping an eye out for the due date of your cards. Set up reminders because every timely payment will affect your score in a good way.

Pay more than the minimum requirement

This is probably one of the most basic things that you can do. You have to pay more than the stated minimum requirements in your credit card bill. Why? Because if you stick to the minimum payment requirement, it will take you forever to completely pay off your debts. You see, only a small portion of the minimum goes to your principal balance. The rest goes to the interest. That means sticking to the minimum requirement will only chip away a small part of your debt. Your balance is still high. That affects your credit score.

If you pay more than the minimum, you can pay off more of your balance. The more it goes down, the more it can improve credit score. It will make your credit utilization rate go down.

Get a higher credit limit

Now that the credit utilization rate is mentioned, there’s also something that you can do about it. If you get a higher credit limit, it will have a positive effect on your credit score.

You see, improving your credit utilization ratio means your current balance should only be 30% of your credit limit. If your balance now is $5,000 and your credit limit is $12,000, that puts your ratio to be above 30%. What if you talk to your creditor and ask them to increase your limit to $20,000? That will put your ratio way below the ideal rate. That can pull your credit score up.

All you have to do is to call your credit card company and ask them to adjust your limit. Of course, you have to be careful when you ask this. Make sure that you will not use the credit limit as an excuse to use it more. Remember, you’re trying to improve your credit score. You have to develop the right habits that will help with your goal to improve it.

How to maintain a good credit score

Once you have improved your credit score, what’s next?

You can still use your credit cards but this time, it should help you maintain a good credit score. Because this score will not stay that way permanently. It will keep on changing depending on how you manage your credit accounts.

For instance, you may have started 2020 with a good credit score. But with everything that happened as we went further into the year, things have probably affected your score. Reports reveal that almost 8 out of 10 credit card holders feel like they won’t be able to afford the payments for long. They said that they don’t even think they can pay off the minimum requirement. If this is the case, then a lot of credit scores will be going down.

This is why you have to create a plan that will help you maintain a good credit score. Here are some tips that you can use.

Plan your credit spending

To maintain the improvement in your credit score, you have to keep on using credit. But it only has a positive effect if you use credit properly. To do that, you have to plan your credit spending. It has to be part of your monthly budget. This way, you already have the funds set aside for the payments. It can act as the limit too. Like if you have a budget of $500 for your credit cards, you can’t go beyond that. And once you get your paycheck, you have to set aside the budget for it. That way, once the billing statement arrives, you can pay it off immediately.

Don’t open too many credit cards

Another thing that you should do is to avoid opening too many credit cards. If you do have 4 credit cards like the average American, make sure you are really using all of those. If not, these will just cost you in terms of annual fees and other charges.

It’s okay to own a lot of credit cards but only if you are really using them regularly. If not, then there’s no sense in opening more. If you can’t take advantage of the rewards, then stick to the cards that you currently have. The more you own, the harder it is to keep track of all of them.

Understand your options

Finally, you have to know your options if you don’t want to waste the improvement in your credit score. Like what if you can’t afford to pay off your credit card debt? If you stop paying, that can make your credit score go down. But if you talk to the credit card company, they might agree to put you in a financial hardship program. This means you can stop paying your debts for a specific time without incurring penalties. That’s one option that you can have.

Make sure that you understand your credit card enough to know all your options. That way, no matter what situation you are in, you know how to improve it. Because if you can improve your credit card situation, your credit score follows.

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