Debt Management

Ready to get in debt? Don’t do it without first educating yourself on how debt can impact your financial life. This debt education tutorial will give you the awareness you need to start a journey of being in debt.

I wish someone had written a debt education tutorial on debt awareness before I got in debt. I would have been a little more conscious about debt.

Step 1: Get Debt Facts

Understand the different kinds of debt

  1. Good debt.
    A lot of people don’t know that some debt can be good. Here are some Examples Good debt.
  2. Bad debt.
    Be aware of financial debts that is considered bad for your personal finance. Here a list of bad debts.
  3. Unsecured debt.
    When a creditor extends you credit without asking for collateral to secure the loan it is considered unsecured debt. Debt that isn’t secured by collateral includes some credit card debts, student loans and some financing debt.
  4. Secured debt
    A secured debt is a debt that is secured by a collateral. For example, a mortgage is secured by the house. If you default on your mortgage debt, your lender can foreclose and take the house. Why? Because the house was used as the collateral for the mortgage loan.
  5. Credit card debt
    Unsecured credit card debt.
    Secured credit card debt
    Major credit card
    Retail credit card debt
    Click here to learn all about credit card debt.
  6. Loan debt
  7. Mortgage debt.
    When you get ready to purchase a house you will need to apply for a mortgage. Once approve you will have to pay a mortgage note to the lender that give you a home mortgage. Other forms of housing financing includes home equity loans and refinancing loans.
  8. Automobile debt.
    Automobile debt is a financing debt. When you need to buy a vehicle you have to obtain a loan from a finance company. You make monthly notes until the debt is paid in full.
  9. Education debt.
    Educational debt includes student loans.

Step 2. Learn how to establish credit
Learning how to establish credit can help you have a good relationship with your creditors. Plus you choose which debt you want to have.

Step 3. Make a list of debts you want to start with
Use the types of debts above to help you make the list. Study the list again if you need to so you can make a wise debt choice.

Step 4. Apply for debt from the list you made.
If you can’t qualify for the debt you want, seek a co-signer. But make sure the debt is being credited to you as well as the co-signer. Also try getting a secured credit card from a bank. Visit any bank of your choice and ask about their unsecured credit. It is a easy process. You will need a certain amount of money to deposit into an account to secure the credit card amount.

Step 5. Pay all your debt before time
That’s right. Aim to pay your debt several days before the due date.

4 reasons to pay your debt before time.

It will safeguard your payments.
It will keep you from paying unnecessary late fees.
It will give you a good credit rating.
It helps you establish and keep a good relationship with your creditor.
Click here for more information on paying your debt on time.

Step 6. Keep your debt to income ratio low.
It is bad financial practice to have more debt than income. Make a debt plan to never allow that to happen. You don’t want to start your financial life living above your means. It is better to have no debt than to have too much debt. So make sure you keep an eye on your debt to income ratio.

The rule of thumb for having debt is to keep your monthly debt payment at or below 35% of your monthly household income. If you have a mortgage that debt payment can be higher.

Click here for a Debt to Income Ratio Worksheet.