Jun 03 2008
Smart Ways To Control Debt
If you are trying to build wealth, then part of your strategy should include debt management. While credit cards and consumer loans are practically essential in modern life and can be sound financial tools (if used correctly), when abused, however, debt can eat into your cash flow and your future net worth. To get debt under control requires discipline and some legwork upfront. It’s necessary to keep track of any agreement you’ve made to make sure that 1) The terms haven’t recently changed, or 2) You don’t default on the terms, causing more penalties and fees that eat into your wealth building strategies. Even if you are simply taking out a short-term loan, like a cash advance, you should understand the terms and follow them strictly to keep the debt from stockpiling from late fees and higher interest rates.
In general, consumer loans for cars and homes can have fixed rates, making it less likely that a missed or late payment will increase your debt load. However, when homes or other large consumer goods come with adjustable rates, either because they are set up that way or you charged them on a credit card, the likelihood that the rate will increase is almost a given, especially if you only make the minimum payment. To control debt, seek a low interest rate, always pay on time, and above the minimum payment to wipe out the debt more quickly. By paying off your credit cards faster, the rate they charge can be viewed as a rate of return on your money that builds wealth because it no longer is tying up your cash. So, for instance, if your interest rate is 7%, by paying down the debt completely, it is like making 7% on your money after that. It’s tough to find a decent investment these days that can give such short-term and higher returns on your investment than paying down debt.





