For many of us, debt is unavoidable. The only control we have, is how we choose to manage it. Ideally, we would simply pay it all off and be done with it, but that’s not typically an option. There are several factors that should be considered when you choose how to manage debt.
Join us as we look at three major things to consider, and how you can devise a strategy to get your debt under control with information as your primary weapon.
3 Considerations When Creating a Debt Management Strategy
There’s no perfect way to manage debt, but there are options. Many people with high amounts of debt from student loans choose to refinance, for example. Others prefer to put more money into savings, than pay extra on their loans each month.
However you decide to manage these things, here are three things to consider when you formulate a strategy:
1. Where You Live
Your place of residence can have a major effect on your ability to properly manage debt. Things like the cost of living, average income, and average monthly payments will all cause more or less pressure on your finances.
An insightful poll of 540,000 borrowers by Credible Labs uncovered the best states and worst states to live in for debt management. The results found that your choice of residence could have a major effect on your debt-to-income ratio.
By choosing a state with lower averages in housing costs, credit card payments, and student loan payments, you can position yourself to spend less of your income each month towards debt.
2. Interest Rates
The interest rates on your student loans, credit cards, or mortgage can also play a major role in how you choose to manage debt. Higher interest rates necessitate the need to pay off the debt faster so you don’t pay more over the life of the loan.
Lower interest rates can give you more flexibility and put less pressure on you to pay the loan off quickly. In either case, the option to refinance could be a great way to lock in a lower interest rate.
3. Your Savings
Everyone should have an emergency fund for unexpected costs or drops in the market. It’s not ideal to rely on credit cards to emergency expenses. The ideal approach will allow you to contribute to a savings account each month, while also making payments on your debts.
This, of course, requires enough income to cover both debt payments and savings, which is why it’s important that you manage your income accordingly and look for ways to maximize it. If at all possible, you should focus on keeping a consistent savings for any emergencies while also paying down your debts.
Wrapping it Up
Managing your debt is a skill that many people take years to learn and even longer to master. It requires a strong command of your budget, and an understanding of the factors that contribute to your success.
How do you manage debt? What factors do you consider? Let us know in the comments!