A Brief on Debt Management Basics

When financial crunch times hit, many of us tend to rely on loans to bail us out. No wonder, more often we find ourselves drowning in debts later on. This is a direct result of taking on debts that we do not have the means to payback. More so, it could lead to damaging badly our financial health, including our credit scores.

In recession, no one wants to have creditors breathing on his neck while one struggle to make both ends meet. However, debts are responsibilities that you need to clear up the soonest, before interest rates eat up your income.

In an earlier post, I delve on the issue of going back to the basics of personal finance management as our best defense against recession. Debt management should have been a part of what I have proffered thus far.

Why debt management? Debt, more often, is a result of poorly or mismanaged finances. Hence, the only antidote is managing it through debt reduction or consolidation. As you take the steps of implementing the rudiments of basic personal finance management, you gain a stable footing enough to repay your debts. While getting another loan in order to pay your debts sounds irrational, this could be the best and quickest solution to settle them. In this respect, if you are unsure how to go about it, it’s time ask a debt professional to help you find the best solution to your financial situation. In any case, take debt management seriously and a matter of priority if you want to weather this recession and regain control of your finances.

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Personal Finance Management Basics: Best Recession Defense

Last January, this is what the BBC headline reads:

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

It said that Friday's employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.

Six months after, these are the headlines:

US consumer confidence fell by more than expected in June, according to a key confidence survey.

The Conference Board's Consumer Confidence Index fell to 50.4, the lowest level since February 1992.

Confidence is down with the economy being hit by both a property slump and rising prices for food and fuel.

And

The US unemployment rate rose at its fastest pace in more than two decades in May, stoking fears of recession in the world's biggest economy.

The surprise jump in May's jobless rate to 5.5% from 5% is the most recent signal yet that US growth is stalling.

It shows US companies are more reluctant to hire as profits are squeezed by a consumer slowdown and soaring oil and raw material costs.

The US Labor Department said the economy lost 49,000 non-farm jobs. (BBC News)

Okey, enough of that. Given –life is more difficult now than ever, not only in US but for the rest of the world. Fuel crisis have reached the shores of those countries who thought that their economy is too vibrant to be affected by US recession and rising cost of fossil fuel.

Where this does leaves the ordinary working class and the small business owners?

To me, this calls for us to come to terms to these economic realities and get back to finance management basics. These basics are our best defense against this recession:

• Reduce costs and/or expenditures where and when applicable;
  
  
• Reinvent your income generation schemes by increase your income where and when possible. Find other means. Be creative. While keeping your day job and/or maintaining the core of your small business, look for other opportunities to increase your income. Remember how Chinese views or interpret the word ‘crisis’? Opportunity! Yeah, they always look at every crisis as opportunity to find something better from it;
  
  
• Redefine your lifestyle. The kind of lifestyle you project and live directly affects your expenditures. Make an inventory of those activities you think you can live without and remove them from your routine. Believe me; you will be surprised how much money and time you will be able to save there from;
  
  
• Re-channel your budgeting on the needs than the wants. The wants can always take a back seat;
  
  
• Recycle and reuse;
  
  
• Save, save, and save.

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Basic Personal Finance and Credit Cards Management Tips

How you manage your personal finances and credit cards directly reflects how you manage your small business’ finances. You cannot isolate the former from how you actually manage your small business. I have noticed that those who failed miserably in their start-up business were actually those who mismanaged their personal finances and buried themselves in debts. You can avoid that. Here are three practical tips on basic personal finance and credit cards management (unfortunately, we tend to neglect) you might want to consider:

(1) Credit cards are your business allies. They can bridge the gap between paying your suppliers and your next collection. Caution though, you should always get only no annual fee credit cards. Do not add burden on yourself with annual membership fees that arbitrarily increase yearly even when you have not utilized your cards. If you can find credit cards that can offer, interest-free credits but with annual fees, try to weigh your options.

(2) Choose balance transfer credit cards. This is by far the easiest way to manage your spending and protect your good credit ratings. Through this sensible process, you actually save money from APR interest rates. Not only that, here, you will only worry about a single creditor. Why carry multiple cards when you can have one that can suit your needs? Having one creditor breathing behind your neck is more comfortable and you can ably have control over your personal finances. Remember; make your credit card works for you like an ally.

(3) Carefully use your credit cards for your NEEDS, not WANTS. This is personal finance common sense. But how many of us have really taken this seriously? Well, if you are one of the heirs of Hilton probably you need not worry about this. We have seen many rich and famous people who were dethroned from their financial thrones (pun intended) and are now wallowing in debts. Lesson: they failed to manage their wants. I will always revert you to Tips No.1 because that is where it should start. Make your credit card your ally by utilizing your credits on your NEEDS only. In short, prioritize your spending.

Very basic indeed, yet we tend to ignore. Let me hammer this with Dave Ramsey’s sensible admonition:

Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this.

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