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5 ways you can reduce and manage your debt now - and tomorrow

5 ways you can reduce and manage your debt now - and tomorrow

December 11, 2013

For most people, debt is not always a bad thing, but is more of a double-edged sword. Using credit wisely, for the purchase of a home or new business, can help you meet your long-term financial goals. But abusing the advantages of credit, by not paying your bills on time or squandering your savings, can have a serious impact on your ability to receive credit when you need it most. 

Fortunately, there are ways to make borrowing work to your advantage, whether you’re relying on credit cards, car loans, mortgages or student loans. Here’s how.

Think before you borrow

Pining for a new motorcycle? Well, a car loan is a powerful way to support the cost of purchasing a new vehicle. But once you hit the wide, open road, can you also afford the high price of gasoline, maintenance fees and oil changes? Before borrowing, always look beyond the initial price tag to calculate the total tally of a new purchase. 

Make good use of “good debt”

Believe it or not, there is such a thing as “good debt.” For example, a home is an asset that is likely to not only hold its value but grow in value over time. Similarly, a student loan that enables you or your child to receive an education is also an example of good debt – and an investment in your future. 

Pay down your debt

The best way to pay down your debt is to eliminate the most expensive debt first. For example, perhaps you’re carrying a high balance on a credit card that charges 18% interest. At the same time, you have a small, low-interest savings account that you rarely touch. If you’re struggling to make credit card payments, why not dip into your low-interest bearing savings account to pay down your more expensive credit card debt. 

Consolidate your debt

One of the smartest ways to pay down expensive debt is to take out a line of credit. A line of credit doesn’t require you to start paying interest charges until you decide to use it, interest rates tend to be low, and you can use as much of the credit as you need to consolidate your debts at a lower overall rate. 

Look to your savings

Not every purchase calls for a credit card. In fact, if you’re simply looking to bankroll a weekend getaway, or purchase a new pair of shoes, turn to your savings. Not only will your savings help you avoid getting into debt, but it might force you to reconsider your purchases.