What is considered good debt? What is considered bad debt? Perhaps one of the biggest financial quandaries facing consumers today is the effective management of their debt and making sure they’re being smart about the types of debt they utilize for purchases. Here are a few tips to help you as you make future purchasing decisions.
- Create a detailed annual budget – Sit down each year and estimate all of your expenses. Be sure to include line items for saving money and future purchases. Don’t forget any trailing expenses. For instance, when you purchase a new vehicle, be sure to include an increased insurance expense or fuel expense.
- Get funding in place prior to budgeted purchases – Apply for a home equity line of credit in anticipation of an upcoming budgeted expense. Then be smart about your purchase timing by waiting for the opportune time.
- Understand the best time to make large purchases – Capitalize on good car prices by purchasing last year’s model once the next year’s model hits the dealership.
- Understand the best products to use for purchasing – Use credit cards for small purchases that can be repaid quickly. In most cases, payment of credit card debt in full each month prevents the accrual of interest. Making large purchases on higher-interest credit cards only prolongs the repayment period and hinders your ability to reduce debt. Consider using the equity in your home to finance the purchase of large items. In most cases, the rates are lower and the interest on some purchases can also be used as a tax deduction.
- Utilize debt management tools for maximizing your payback methods – Be mindful of the interest rates and repayment terms for each of your debts. Focus on making additional principal payments, starting with the debts with the highest interest rate. Sometimes placing as little as $25 or $50 additional dollars to your minimum monthly payments can reduce the repayment periods of your debts by years, as well as the amount of total compounded interest by hundreds or even thousands.
Vigilance and knowledge are of the utmost importance when forecasting purchases and managing debt. Maximizing your purchasing power by effectively budgeting and choosing the best product for financing can be the key to a healthy financial future. For help in determining your best debt options for your purchases, contact a trusted Univest advisor today at 877.723.5571.
Univest Bank and Trust Co. is Member FDIC, Equal Housing, Opportunity and SBA Preferred Lender.