Certified Blogaholic

Managing Debt During a Financial Crisis

The US government continues to scramble for a resolution to the woes of the financial industry in hopes of averting a real meltdown that has not been experienced since the 1930’s. For those who are still lucky enough to keep their jobs, the issue is how to control expenses and maintain financial stability. While an average consumer definitely has debts which include credit card obligations, car installments, or home mortgages, good fiscal management means that the family income will be sufficient to fund these debt payments with enough left to take care of regular expenses.

One of the most critical steps in maintaining financial stability is determining income and expenses. It would be good to take a conservative stance when making your estimates — this means keep income at minimal levels while approximating expenses at its peaks. If you have supplemental income from other sources that are irregular, try to keep this out of the equation first. When there are payments that are not settled on a monthly basis, fund a pro-rated portion of it in your savings monthly. This way, when payment becomes due, you have enough to settle them. And always allocate a portion of your earnings for emergency expenses if possible. If there are still enough funds left, keep them as savings. When your savings fund has grown enough, place them in secure investments. Regardless of the interest income rate, a 2% income on savings is still better than having them earn nothing at all.

For those who are heavily indebted, now would be a good time to reduce your debt. First thing is to lower your interest expense. If you can find refinancing or consolidate at lower rates, go for it. This not only reduces your debt, but also your regular amortization. If you receive any windfall income that is unexpected, settle or prepay your debts. It would be good to settle them on a per creditor basis. This reduces the number of loans that you have to manage or monitor. Prioritize taking out loans that have higher interest rates. Keep in mind that when I talk about debts, these include credit cards that have outstanding balances or are revolving. These are the ones that have high interests and should be taken out first.

Overall, it’s not that difficult to get out of the red. Just maintain a tight rein on expenses and manage your income well. And whenever possible, try to be aggressive in finding other sources of income. Making money is not only for those who received higher education. Always be open to opportunities around you, but be cautious about those that require cash investments. If possible, stay within those that only require your time and sweat. If things don’t work out, you lose nothing and you learn from the experience.

Tags: consolidate debt, debt, loans, making money, managing debt, pay debt, refinancing   Posted in Money & Biz