Many Americans have become accustomed to using debt to buy homes, cars, and food as well as non-essentials such as vacations and entertainment. Debt, which is borrowing money (loans) then re-paying the lender the amount that was borrowed (principle) plus a fee (interest) is useful for consumers in the process of building their assets and personal wealth. Unfortunately, debt can also be an endless hole in which consumers continually dig without making progress toward repaying their loans or gaining financial security.

Debt should be a way to invest in goods that have a positive return. For example, taking out a mortgage to purchase a home requires debt, but re-payment at a reasonable interest rate still enables you to build equity – especially when housing values increase over time. There are some basic guidelines that all responsible people can follow to stay out of the clutches of debt.

Limit yourself to one credit card. Using credit cards is convenient and safer than carrying large amounts of cash. Many credit card companies offer perks, including free gas, frequent flier miles, and even cash back, to consumers who use their cards. However consumers who have found themselves in the position of owing multiple lenders, such as having a variety of credit cards, one or more car payment, and perhaps a home loan (mortgage) often end up with “too much month for their money” – an inability to pay all of their minimum payments each month. Multiple loans, especially at high interest rates, make debt a major problem.

Be aware of the interest payments associated with your loans and credit cards. Paying off loans early and paying your full credit card balance each month reduces and can even eliminate interest. An important advantage of good debt management is that it will put you in a position to secure major loans, such as automobile loans and mortgages, at the lowest possible interest rates. Consumers who have done a poor job managing debt, or whose circumstances have dramatically changed their ability to make loan payments, only qualify for loans with the highest interest rates.

Keep track of your credit card purchases each month. Stop spending when you have reached a pre-determined limit that is equal to or less than the amount you have to pay your entire balance each month. Any time debt is assumed there is risk to the consumer. If your financial circumstances change, such as job loss or illness, it may become impossible to meet debt payments. Unpaid debts result in penalties which can include increased interest on the accrued debt, finance charges, foreclosure, repossession of goods, and bankruptcy.

Only finance purchases that will result in a return on your investment. This means avoid going into debt for vacations and entertainment – you’ll have nothing to show for them once they are over, but you may pay for them for years. Managing debt wisely involves minimizing the risks you take going into debt in the first place. As a general rule, you should not use credit for anything that you are not able to pay in full in a short-term period (such as paying your entire credit card balance each month) or that does not result in a greater return to you than the cost of the loan in the first place (such as owning a home valued more than your purchase price or using your car to get to work – which enables you to earn money to meet your living expenses).

Consider Debt Consolidation. Multiple loans, especially at high interest rates, make debt a major problem. A consolidation loan is an option that consumers in this situation may consider. Debt consolidation is combining more than one loan into a single loan for the purpose of lowering your overall monthly payment. Sometimes companies that offer debt consolidation offer a lower overall monthly payment, but actually increase the total interest payments so that you must pay more money in total finance charges than your original loans would have cost.

UWSA offers consumers news and advice with with debt management, debt consolidation and refinance questions.