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Effective Debt Management Tips

Debt management in and of itself is fairly simple. It is a matter of applying a few simple rules to get control over your finances. Most people find debt management difficult because they do not apply the rules necessary to get things under control. If you have debt problems you can manage your debt and get them under control by using these debt management tips. If not, you will likely continue to struggle with a worsening debt problem.

Establish and follow a budget. Prioritize your spending and eliminate unnecessary spending. It is imperative that you spend less than you make to keep from accumulating more debt and to be able to pay down existing debt. Account for every penny of income and spending in the budget. Once you have a clear picture of where your money goes it should be easy to identify areas where spending can be reduced or eliminated.

Build up an emergency fund. When faced with an emergency many people have no choice other than to use credit to pay the cost, but with an emergency fund you can minimize or even avoid using credit in these type situations. For example, to pay for a car repair, a leaky roof, or to pay bills during a lay off or period of unemployment. The goal should be to save up three to six months of wages for the emergency fund.

Plan ahead for major purchases. Start a savings account for these type purchases, estimate how much you will need and when it will be needed, then save toward the goal each month. Try not to use debt to buy things that depreciate in value, like furniture and appliances, or to pay for things like vacations or nights out on the town. The possible exception to this rule is the purchase of a vehicle, few people can pay cash for a new vehicle there days. But try to have as large a down payment as possible.  Ideally, debt should be used only to purchase items that appreciate in value or generate cash flow. Good examples are: your home; rental property; and stock and bond investments.

Build and maintain a good credit rating. Having a good credit rating is important, because when you do need credit it will be readily available and at a much better rate than if your credit rating is poor. If your credit rating is already poor their are steps you can take to improve it. First, review your credit report and identify any errors that it may contain. Write to the credit bureau about the errors to have them removed.

Second, pay your bills on time each month. Your credit rating will gradually improve as you build a good track record of paying your bills on time and as negative items drop off the credit report. Negative items remain on the credit report for seven years, so it may take some time to improve your credit rating, but over time it will improve and eventually you will have a strong credit rating if you stick with it. With a strong credit rate you can shop and obtain the lowest rates whenever you do use credit.

Consolidate your debts. By consolidating your debts into one it will be much easier to manage your debt. Also, you may free up money each month that can be used for additional payments on the debt or at least to keep from going further into debt. Your credit rating should improve as well, because all of the smaller debts that were combined will show up as paid on the credit report and your high interest credit cards will be gone. Consolidating debts is a significant step toward being able to manage your debt effectively.

If you are unable to consolidate then another technique to use is snowballing your payments. For this technique to work you must not generate any new debt. You make your payments as normal each month, but focus on the smallest debt, paying some extra whenever possible. When this debt is paid off add that payment amount to the payment for the next lowest debt. Continue this process until all your debts are paid. You will be making larger and larger payments as the snowball effect continues to build.

Managing your debt is fairly easy by following these debt management tips. But succeeding requires the discipline to consistently apply these debt management tips until the process is completed. Once you get started and see some progress you will soon realize that managing your debt is not only a way to get out of debt, but also a way to accumulate savings and assets for you and your family’s future.

If you need help with a loan to pay off other debts, you can approach MM Credit for a loan. MM Credit provides all types of loans such as business loan, foreigner loan, payday loan, personal loan and private property loan to needy customers. You can apply for a loan online using our online loan application form here.

Otherwise, if you require counseling on your debt issues, you can seek help with Credit Counseling Singapore. Credit Counseling Singapore is a charity dedicated to helping people with their debt problems. They also provide financial education to promote responsible use of credit and money management skills.