Hey everyone! I’m happy to share a guest post from Andy over at Pennyless Dad on debt management tips. After you are done checking out this post head on over and check out more content!
Young professionals are the driving force behind the propagation of the human civilization.
They define power, new wave of professionalism, modern thoughts, charisma, and surely financial independence.
And, debts on a young professional’s portfolio just doesn’t match this smart personality. This is why I want to lay out 6 debt management tips.
Instead of fearing debt, and succumbing to its destructive nature, these young men should learn the ways to tackle it, and manipulate it to their own benefit and financial growth.
If you are a young mind, working on making yourself debt free, and want to put your income to some good use, like increasing savings and net worth, then this is an ideal post for you.
Never mind those bullying debts anymore. For, after going through this post, you will be able to understand debts very minutely, and be knowledgeable about authentic debt riddance. And, henceforth you will not only pay off debts, but also maneuver debts, in the best ways ever.
Here are top 6 debt management tips that every young professional can use:
#1 : Know the intrinsic meaning of debt:
Debt means you are borrowing goods, money, or any form of wealth, from another individual, group of individuals or an institution.
And borrowing sometimes means, you have to return it back to its rightful owner.
That’s the easiest way I can explain debt to you. But, that’s not all. Debts have interests, that assimilates the original debt amount’s real value in the current market.
Once you take a debt, you have to pay it back with the accrued interest charges. This is the sole characteristic that makes it harder to payoff debts. Also, often times, several petty to large penalty charges and fees, get added up to the debt amounts.
Hence, you can pretty much say that if you borrow $1 from someone, then you have to return back more than $1 to that person!
That’s how debts work.
This whole concept of debt was made to help built a better society. People come to help other people achieve dreams with money and resources. In return the borrower needs to pay back the original amount, to the creditor with proper compensation.
Compensation for what?? For the loss incurred by the creditor during the time period, when his wealth or money was kept blocked by the debtor!
That’s what debt is! Once you borrow, you have to return! There’s no second opinion or thought to that!
The pro tip is, take help of debts only when you need it, and only when you can do something really great and profitable with it. Else, you will end up only satisfying the creditor!
This brings me to my next point.
#2 : Use good debts to increase net-worth:
I once again repeat, debts are meant to help build a better society. So, you need to have only good debts around you.
‘Good Debt’ is a very relative term, and it doesn’t always mean good in the terms of monetary values.
These debts range from mortgages, to student loans, and many other investment vehicles. You can say ‘good debt’ is synonymous to ‘investments’.
And who else should be more interested in investments, other than the young professionals of every generation??!
Mortgages, and other secured debts, concerning an asset that has the potential to increase in worth, over time, are wonderful wealth building decisions to make.
On the other hand, student loans, business loans, and other types of lent resources for prospects related to life and career.
Most importantly good debts help you to increase your net worth, unlike the bad debts.
Those bad debts are anything that has no asset value or bear no good profit for the debtors.
Examples of them are credit cards, payday loans, unwisely used personal loans, and so on. Get rid of these debts as fast as you can, you know.
Even the financial experts are working on reducing these debts. We are all humans after all!! We all make mistakes!
Start to swerve past these wrong decisions, from a young age itself!
#3 : Give importance to the ‘debt to net worth’ relationship:
Falling next in line is the ratio, which is a statistical evaluation of your personal finance portfolio.
It is the balance, you have to maintain so as to keep yourself potent financially.
This ratio is measured by the relation of your total debt to your net worth. If the ratio is equal to 1, then you are on the brink of a financial fall.
|Total Debt / Net Worth <= 1|
If your ratio comes above 1, then your finances are messed up, and you should take care of that. It means that your debts are equal to your net worth. That’s really dangerous.
Your aim is to always maintain the above explained relation.
#4 : Do a balance transfer for your credit cards:
This is the best way to tackle the modern day debt menace, Credit Cards.
You have to be very careful when dealing with credit card debt. They carry pretty high interest rates, and have hefty balances if maxed out.
And not to our surprise, most of us are dealing with multiple credit card debt, rather than just credit card debt.
So, the best way to address multiple credit card debt, is to do a balance transfer, and bring all of your credit card debts, to one place, at one averaged out interest rate.
#5 : Take legal help without any hesitation:
When you are working with money and finances, try to have your personal financial expert, lawyers, and/or debt law firms working with you.
#6 : Do consider the minimum payments on your debts each month:
Even if your times are going hard, the workload is all over you, still you should not avoid the minimum monthly payments on any of your debts.
The more you miss them, more rapidly will your debt amounts grow, drowning you along with it.
However, you need to always search for convenient ways to make over the minimum payments. As, the faster you clear your debts, more time you will have to deal with investments and build wealth.
Bet, those are some real workable steps to financial freedom, that you can use to solidify your money and debt solutions.
Author Bio : Andy is a blogger at Penny Less Dad and financial writer associated with the Oak View Law Group. He is a debt expert and a member of several online forums where he shares his advice as well as tips to lead a financially independent life.