Managing Debt

Managing Debt
Managing Debt — Use debt wisely for a more comfortable future


Use debt wisely for a more comfortable future

Spending is easy. Spending wisely takes a little more planning and some discipline. Over-spending may send you deep into debt, and that can limit your opportunities to save for your retirement, your children and a home.

Of course, some debt can be viewed as an investment, such as financing a home that may go up in value, or borrowing to pay for a college education. But using debt to buy things you can’t afford can create financial problems that may make you uncomfortable. According to a recent 2012 survey, 26 percent of Americans under age 65 are less comfortable with their debt than they were a year ago. 1 This could be caused by increased borrowing or concern over job security and income levels, or a general lack of confidence in the economy.

Over-spending can limit your opportunities to save for your retirement, your children and a home.

Here are a few tips to help you manage your personal debt:

  • Set up a budget to track expenses and spending. Set aside cash for quick consumption items like groceries and restaurant meals. When you do pull out the credit card, carefully monitor your card balance and try to never spend more than you can pay off in full every month.
  • If you want to reduce your credit card debt, pay off the cards with the highest interest rate first. Then go to the next card and pay that off. To avoid accumulating any additional debt, use cash for purchases whenever possible. Pay off credit cards and other shortterm debt, which is not tax deductible, before you pay off longer-term debt like a home mortgage, which is tax deductible.
  • If at all possible, avoid paying just the minimum on a credit card bill. It can take years to pay off your balance because minimum payments allow interest charges to compound over time.
  • As you pay off your credit cards, try to continue contributing to your retirement plan. If you stop your retirement saving to pay off debt, you may have a hard time ramping up your savings plan again.
  • Borrowing against your home or 401(k) to pay off credit cards puts those important assets at risk. It’s best to use your income to methodically pay down your cards. It will go faster if you can stop using the cards for a period of time.

Be responsible in how you use debt

Stick to your budget. Spend less than you make and use credit cards responsibly. This will help you manage your debt. Learning to use debt wisely will make you feel more comfortable and confident about your financial future.

1 Source: 2012 survey conducted by Princeton Survey Research Associates International.