Credit repair services and resources for Americans.

Those individuals whose debt management skills are deemed strong can end up paying tens of thousands of dollars less when repaying debt. When you consider the largest purchase (and debt) that most people take on - their homes - a single percentage point on the cost of borrowing can means thousands of dollars over the duration of a mortgage. The same holds true of automobile loans. Good debt management means better opportunities to access resources, at significantly lower prices.

Understanding Debt Management

The most important things to understand about debt management include what financial advisors call good debt as opposed to bad debt, and the importance of avoiding too high a debt ratio.

Understanding the difference between good and bad debt can be put in very simple terms. Debt acquired for purposes of quick consumption almost always falls into the category of bad debt. Topping the list of bad debt is credit card debt. Experts believe that the average American consumer carries between 7-10 thousand dollars of credit card debt. Considering the interest charged on credit card debt - typically between 15-18%, this is extremely expensive
debt. As well, often this debt falls into the category of 'quick consumption' - that new outfit that you couldn't afford but had to have - those meals eaten in restaurants when you were too tired to cook - that vacation you simply couldn't do without.

Good debt, on the other hand, is debt incurred that eventually offers you a return. This is often the debt you incur to build assets. A home can be an excellent investment, and is often a person's single, biggest asset. When they pay that home off, it is theirs to sell - hopefully for a higher price than it's purchase price. Another example of good debt is that acquired for educational purposes. This type of debt also offers a payoff. Higher education will presumably provide one access to better paying jobs. In addition, good debt helps in building strong credit scores.

A person's debt ratio refers to the percentage of income required to service debt. Experts usually agree that debt ratio should be no higher than 40%. Generally speaking, the lower one's debt ratio is, the more money they are able to free up to invest. People with too high a debt ratio tend to spend more of their money servicing debt (in other words, paying interest), instead of using that money to invest so as to make money.

Debt Management - The Skills

Debt management skills are developed over time. They begin at a very young age, as children watch how their parents spend money. Many financial experts believe that it is when we are very young, learning what money is and what it's worth, that spending and debt patterns begin to develop. These experts believe that the single most important facet of debt management is understanding your relationship with money.

1) Spending

A huge body of research has demonstrated the unfortunately reality that most people don't know how they spend their money. It sounds incredible, but it's true. How many times have you heard people comment that they 'don't know where it all goes'? This fact speaks to the strange relationship individuals have with money. Do you realize that if you didn't spend that dollar a day on coffee, you'd have an extra $30 dollars every month to invest. What is that $30 a month, or $360 a year, worth? Understanding where you spend your money is the first step in developing a healthy relationship with money and debt.

2) High Interest Debt

The first step in any debt management strategy is to pay off high interest debts first. For most people, this means credit card debt. Talk to you financial institution about your debt. If you can't get out from under your credit card debt, it is often a good idea to take out a loan from your bank to pay off the debt, they pay off the loan over time at much lower rate. This saves you money. (Remember - if you need to, cut up those credit cards once they're
paid off!) If you have too much high interest debt, you may benefit from hiring professional credit repair services to help manage the impact this debt has had on your credit score.

3) Knows your Limits

Borrow carefully. If you find yourself in a situation where you are only paying 'the minimum' payment required on a debt, you're probably in trouble. Only paying the minimum required typically barely pays for the interest accumulated on that debt. The amount of interest you will pay over time can be enormous.

4) A Cash Cushion

One reason people access expensive debt is because they find themselves short of cash before payday, or in an unexpected emergency they have not budgeted for. Ensuring you have a cash cushion helps prevent the need to access expensive money. Ideally, one would have 3-6 months of income put aside in cash of job loss or other financial emergencies.

5) Know when You Need Help

Don't fall into the trap of feeling too embarrassed about your debt levels to seek help from a financial or credit professional. This is a very expensive mistake to make. If you are unable to effectively manage debt, let someone help. Doing so could save you many thousands of dollars over the long term.

There are many excellent resources available that are designed to help people understand debt management and better hone their debt management skills. A variety of tools are available on the Internet that help you calculate the cost of debt and understand how investing helps build credit and assets. Learn how to approach debt in terms of building assets today, and you may reach your financial goals sooner than you think.