Personal Finance- Management Of Debt

It is crucial for every individual to manage the personal finance, so that they don’t end up in debt and left with no savings; Savings and a debt-free life is a must to enjoy carefree retirement years. One should always plan ahead as early as possible.

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Management of debt

One of the first and foremost things one should do to have a secured future is to get out of all the debts as soon as possible.  The interest rate paid to those debts is going to eat up your savings. List down all the loan you owe and target to pay as much as you can on monthly basis. As the money gets routed to the payment of loans, you will not be tempted to indulge in unnecessary spending.

Also, you need to keep paying off your credit card bills fully every month. The interest rates charged by the companies are huge and hence avoid paying these additional charges. Keep clearing it off so that you will enjoy the benefits of reward points and at the same time does not have to pay any additional money.

Another thing one should keep in mind while managing the debt in your personal life is to use debt ratios as your guidance.  You should compare your debt to standard few ratios. The standard ratios of debt are:

  • The consumer debt should not go above 15-20% of your income
  • Housing debt should be always less than 28% of your gross income
  • Total debt should not exceed 36% of your income

Last but not the least, you should never take money out of your retirement account.  Do not borrow from that account unless it is an emergency and you don’t have any other option. There are tax penalties and consequences when you borrow from the retirement accounts and borrowing the money from the account will only result in making the transaction more expensive than beneficial.  Once you are able to follow the above-said points religiously, you can lead a stress-free life.