Tips on How to Manage Debt Effectively

When it comes to financial management, most people tend to think only of how they invest their saved funds. But for many, managing debt effectively is an equally, if not more important financial management tool than investing. Why is that, you ask? Because so many Americans have substantially more in debt outstanding than they do in savings and investments.

The great thing about debt management is that you don't need a PhD in Finance to understand the basics. All you really need to do is ask yourself a few very basic questions.

Do I need this loan?
Seems simple enough, but there are plenty of people that keep cash in low-interest savings accounts while financing purchases with high-interest credit cards.

What will this debt truly cost me?
Consider the total cost of an item, including the interest cost, before making the decision to finance it. The best way to avoid debt problems is to avoid debt in the first place.

What can I afford?
Debt is sort of like quicksand. Getting into it is easy, but getting out -- not so much. You have to consider any new debt carefully for impact on your future finances. Understand that items financed with debt will cost you much more than the original purchase price.

Do I have the lowest rate I can possibly get?
Did you know that the added interest cost of a $100,000 30-year fixed mortgage at 6% is over $23,000 more than the same loan at 5%? That's a lot of money taken from your pocket if you could have qualified for the better interest rate.

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Do I have the best loan terms possible?
Imagine if you have a 5-year adjustable rate mortgage and you could refinance to a 30-year fixed at the same rate? You could keep your interest costs the same but reduce the risk of a nasty adjustment to your payment in the near future that you might have difficulty affording.

Am I making payments in a way that reduces my overall interest costs?
If your goal is to reduce your total debt, you should always prioritize your payments. No, that does not mean that you make your mortgage payment and don't make your credit card payment. It means that you should always make the minimum payments for every obligation, but any extra funds floating around should be applied to your highest interest cost debt first. Think of the simple example of a credit card costing you 24% interest and a mortgage at 5%. Sure, you might own you house free and clear sooner by prepaying your mortgage, but you are significantly extending the payment term on the more costly credit card debt.

Make Debt Management Simple with Credit Sesame

The concepts behind responsible debt management are fairly straight-forward, but finding the information needed to make optimal decisions can be a challenge. Fortunately, in the age of the Internet, there are plenty of useful tools out there that can help you make financial decision-making simple. Need to calculate total interest cost? Compare loan terms? Track mortgage rates? Find a debt restructuring loan? The tools are out there, you just need to use them.

Credit Sesame is a free credit and debt management tool that uses bank-level analytics to put consumers in control of their finances. Credit Sesame uses cutting-edge technology to offer consumers customized debt optimization advice, rate monitoring and credit and debt monitoring tools. Plus, it provides a refreshed monthly, so you are always on top of your creditworthiness.