How to Manage Your Debt

Matching assets and liabilities- This is an idea behind target date mutual funds and it is used by banks and insurance companies. You should have assets available to you at the time you will need them. It is not advisable to finance long term assets such as a home with a short term loan from a credit card. Have some knowledge that you cannot use the value of your home to pay the bill. Trouble is spelt when you borrow a long term for a short term asset.

It is not possible to match assets and liabilities. In this case, it is at this point that one becomes tempted to use his or her liquid savings. Instead, you should maintain your liquid savings. This is a smart move to take and will not direct you to not knowing how to manage your debt. It is important to also watch out for the interest rate risk. Differentiate between the types of interest rates. If you settle for a variable interest, note that the cost of your loan will rise up the market as the market rates rises.

Last but not least, saving is a hard task not only for you but for almost everyone with the only difference being that those who save do have persistence. It is important to save some money so that when faced with debts, you know how to manage it. Debts can make you decide on absurd decisions such as sucking up your retirements benefit savings. If you do this, you will be disappointed some years down the line when you retire. You will have nothing to count on and no job to do. It is wise to pay all your debts slowly and max out your savings plan.

Minimize regular debt expense. Have in mind that debts are serviced each month thus this is unavoidable regular expense. The larger such expenses are, the less flexibility you have. These are some of the best ways to manage your debts. If you take heed to them, you can become debt and stress free.


Ben Arhin


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