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Living within your means without debt

By: Shiela Banks
Living within your means is the right and responsible thing to do. For many years Americans have been living on debt and as debt piles up the risk of defaulting also rises. A job loss or any other unexpected event can make the borrower get in trouble defaulting from debt payments.

The best way to handle debt is to simply not carry any debt. If you have a steady job try to plan your budget in a way that you do not spend more than you make. In fact you should spend less than you make in order to provide for some slack income and some savings. In order to be able to handle unexpected events we should all have a cushion in the form of dollar savings in the bank that is liquid and risk free. The cushion should be enough in order to live for between six to twelve months or to pay for unexpected high expenses such as medical expenses. If the cushion is ever used you should make sure that it is replenished as soon as possible.

But sometimes there is no choice but to take debt. When taking debt you should be smart about it. One could assume that if a lender is willing to lend money it means that the borrower would be capable of paying it back. For years consumers took as much debt as they could assuming it is really the lender problem allowing for that debt. But in reality many lenders are not that responsible when evaluating debt or simply make mistakes. Do not rely on lenders to tell you if you can or can not afford a loan. Take a deep look at your finances and make the decision yourself. Make sure that the ratio between your debt and your income is reasonable. Also make sure that the debt terms are favorable in terms of interest rate and that the loan does not carry a pre payment payoff penalty.

Interest rates change often and as such long term loans should be alive and in your conscious all the time. It is smart to check every now and then if refinancing your debts is economical. If interest rates drop refinancing can save you a significant amount of money in interest payments over the term of the loan.

Some forms of debt should simply never be used. One of the most common forms of debt in the United States is credit card debt. The reason is simply that credit cards are the easiest forms of debt to be approved for and that realizing debt on your credit card is very simple. The only thing a consumer needs to do to accumulate debt on a credit card is to simply just pay the minimum credit card payment and leave the rest as debt. The problem with credit card debt is that it is too easy to use and that the terms of credit card debt are in almost all cases very bad. There is much cheaper debt that you can get which requires some more work and specific applications. While other debt is usually tied to a specific usage like buying a car or a home many people do not realize that you could go to your bank and apply for a credit line for debt that is simply cash you can use for anything.

Shiela Banks writes more on assistance unemployed student key to achieve higher
Tags : Living ,means ,debt ,debt ,credit ,make ,simply ,card
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Article Number : 4576
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