Understanding Some Basics of Debt Management
Budget Your Income and Expenses
Being financially prudent throughout one’s life has huge advantages that touch almost every facet of our being. One critical means of establishing and maintaining financial health is through the use of a budget.
Rather than serving as a restraint on the quality of life, a budget actually can help to ensure you are able to financially maximize your ability to live life to the fullest. The main function of a budget, really, is simply to track and balance your cash inflows and outflows.
Certainly you want more coming in than leaving. But if that is in fact not the case, the result will be debt. If you don’t feel you have good budgeting skills or simple mathematical competency today, you can learn fairly easily. Working with a budget is definitely worth the relatively small effort.
Create a Financial Plan
Develop a good financial plan. This exercise not only includes the budget referenced above, but also a broader set of objectives on how you will - or hope to - make clear-minded decisions on where to commit your limited resources and to invest any surplus beyond required expenses.
Certainly life’s unpleasant surprises at times necessitate a person or family to pay or borrow for unanticipated expenses. However wherever possible, avoid making debt part of your financial routine. Plan for the future and how you will pay for ongoing needs without incurring debt.
Borrowers and the Law
All countries have laws that protect their debtors from creditors. The laws in the US are extremely strong. But creditors can still find creative means of collecting what they are due.
It is best, though, when a borrower and creditor are able to avoid an adversarial relationship and talk openly about the person’s financial struggles to develop a creative alternative for repaying a loan. Such an approach is much more efficient than attempting to hide from a creditor.
Death and Debt
When a person dies, any outstanding debt will still be extracted from the person’s estate. Taxes are paid to the government first, and then debts to the various creditors. Anything remaining in the estate is then distributed according to the dictates of the deceased person’s will.
So if at all possible, it is best to repay debts during one’s lifetime rather than leaving those financial obligations to the post-death estate distribution process and potentially depriving your family members from a needed inheritance.
Secured vs Unsecured Loans
Loans may be secured or unsecured. Secured loans have the backing of collateral or some security, such as a home. Unsecured loans, on the other hand, don’t have that same backing and consequently incur a higher rate of interest because the risk is much greater to the creditor.
The best option, if indeed it is an option, is to avoid loans altogether. Of course, few people have the financial ability to hit a lofty goal like that. After all, even a very modest home will cost $100,000 or more, and a reliable automobile will be several thousand dollars. However, to make debt-free living a long term objective will help to keep you on a path of financial sanity in a spend-now-think-about-it-later world.
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