Having debt is a normal part of life. But there are wise ways to manage it — and ways that can put you in considerable financial stress. These tips and insights can help you manage debt as a financial aid rather than a liability.
Smart debt management starts with a plan
Having a plan is the most important step to take when you consider going into debt. You should know why you’re taking on the debt, how much it will be and how, as well as when, you’ll pay it off. Keep in mind the total cost of debt, including both the initial amount borrowed and the interest that will accrue.
Make sure to assess how any significant new debt will fit into your financial plan and impact your goals. For current debt, reviewing your financial plan can help you determine the best way to pay off your balance.
As part of your debt management plan, you might consider a securities-backed line of credit. Rates tend to be low, since you’re borrowing against your own investments. And it gives you flexibility to make purchases whether the market is down — and selling assets could create a loss — or when the market is up and a sale might create unwanted capital gains. To learn more, please contact your Private Banker.
There is no good or bad debt
When you have a plan, there really is no need to categorize types of debt as good or bad. For instance, it can be okay to use your credit card for a large luxury purchase if you know you can quickly pay it off with an upcoming bonus check and you won’t need that bonus for an essential expense.
On the other hand, interest fees and other charges can quickly turn a small debt into a large balance if you make only minimum payments or miss payments..
3 debt missteps to avoid
Along the path to wise debt management, there are three particular missteps you should work to avoid.
- Using debt to live beyond your means. If you simply can’t afford something, then you’re usually better off saving up for it than borrowing to buy it, especially if it’s a “want” not a “need.”
- Letting debt get out of hand. A basic guideline states that no more than 28% of your total income should go toward housing debt and no more than 36% should go toward all of your debt combined. If you’re near the limit, think twice about taking on additional debt. Consider, too, whether you could still manage the payments if you suddenly faced an unexpected expense, such as a large medical bill or expensive home repair.
- Taking on student loans without considering future pay. Education expenses are generally seen as an investment in your future. But you still need a realistic payoff plan based on your anticipated income. After graduation, consider planning to live on your student budget for a year or two so that you can focus your funds on reducing your debt.
We’re here to help
Whether you’re contemplating future borrowing and want to understand its impact on your financial goals or you’d like assistance creating a debt-reduction plan, we’re here to help. For a personal discussion, please contact us today.
The information, views, opinions, and positions expressed by the author(s), presenter(s) and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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Equal Housing Lender. All loans and accounts subject to credit approval. Terms and conditions apply.