The Importance of Debt Management

Debt is simply an ugly word, after all it represents all that is wrong with our economy, and far too many households to fathom.  There are several examples of this being true.  Consider this, cash that goes towards paying down interest laden debt will amount to decreased cash flow, in which case you are left with less money to save and invest.  Debt often carries interest and finance charges, at which case the simplest of goods and products could end up costing you much more than their sticker price.  What makes debt even worse is that it tends to spiral out of control, once you lose visibility to your debt it can cause missed payments, late charges, and negative impacts to your credit score.

While debt carries many negative connotations there are actually certain types of consumer debt that are considered perfectly acceptable to carry.  For example, I would venture to say that a majority of people have a mortgage on their home.  Also, many people have student loans long after they graduate college.  Personally, I have both of these types of debt even though I have long since freed myself from credit cards and other types of harmful loans.  There are certain schools of thought that consider any and all forms of debt to be toxic, but I still draw a line between the types of debt that are tax deductible and then everything else that isn’t. 

If you are already burdened with a ton of debt then at the very least you need make sure it is being efficiently managed.  Effective debt management is important regardless of whether we you are talking about safer consumer debt, or the more harmful kinds.  You should consistently be aware of all debts owed, the interest percentage they carry, their tax implications, and especially the due dates on the monthly payments.  This way you can set manageable monthly goals on how to go about paying down this debt.  You simply start with the debt with that carries the highest finance charges coupled with the inability to use it as a tax write-off, and then start paying that debt down first.  From there on it’s a snowball effect on your debt, and you pick up steam each month as your balances decrease at an exponential rate and more of your money is put toward paying down the principal.

Obviously, the most important aspect of debt management is to avoid it altogether, though I understand this isn’t always a realistic point of view.  So when you find yourself in a bind, put your responsible foot forward and get a handle on your debt.

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