With some planning, you can manage the darker side of personal debt

Everything that sparkles has a darker side to it and personal debt is no exception to this general rule. Debt is one of the most powerful tools of modern times to manage one’s personal finance, but it can soon turn into a vicious circle forcing you to a situation where you can find yourself at the end of the road not knowing how to get out of liabilities you have created over the years. In the worst case scenario, you are stuck with the syndrome of borrowing for the purpose of repaying an existing loan, even at a high cost or interest rate. Yet, there are certain simple ground rules you can follow to avoid getting close to such a helpless condition.

First thing that you have to carefully decide is which loan should be repaid first if you are finding your repayment liabilities much greater than what you can easily handle each month with your pay check and other sources of regular income. Your bad credit debts, such as credit card loans and high interest personal loans should be taken care first as these do not qualify for any tax deductions. So, the first principle that you need to follw is to pay off your debts of this kind that charge a very high interest rate.

After you have removed your high interest loans, or have reduced them to a level where it is not difficult to control month by month, the next segment that you need to address is your home loan. You can thinks of various options to reduce your mortgage costs, such as reducing the length of loan, increasing the frequency of repayment or making occasional payment off the principal amount whenever you have got spare cash.

Interest-free financing appears to be quite an attractive option to many these days. But you have to keep in mind that nothing comes for free, and there are often some fine prints in such offers that most people ignore. Most such offers come with the condition, in fine prints of course, that if the payment is not made within the interest-free period, then the interest rate charged is quite high and is charged on the original amount outstanding irrespective of what has already been paid.

Consolidating your existing loans is another option that has many positive sides to it. The interest rates charged on such consolidated loans is often quite less, and it also has the advantage of not carrying the burden of keeping track of loans from different sources and making timely repayment for each.

It is advisable not to keep too many credit cards as there are more chances of missing making a timely payment on one or the other if you are carrying too many. Ask for a small credit limit so as to keep your high interest credit card debts under check. In fact, the recent trend is people using more of their own funds through debit cards than using the credit cards for most of their regular purchases. These simple and basic rules appear to be quite obvious, but are generally not followed when it comes to managing their personal finances. However, this approach can go a long way in helping you keep yourself out of a lethal debt trap kind of situation.