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If you are in debt and want to manage it efficiently, one of the most effective ways to do it is to calculate and manage your expenses first. If you take out some time to look into your expenses you will see that there are lots of areas that you could have prevented your cash outflow. Even if you cannot avoid such expenses completely, you could have easily postponed these expenses till the time you restore the health of your finance.
Calculating and taking control of your expenses is simply another good way of self-evaluation. You will find that this is one of the most recommended measures for debt management when you go through several online materials on spending as well as when you visit different debt relief sites such as NationaldebtRelief.com and other looking for a suitable option.
Ideally, most of the debt consolidation options available to you will significantly help you to manage your existing debt in a better way but making it a successful option will entirely depend on your self-evaluation and control over your spending habits. It is normally seen while reviewing most of the cases to find out the reason that might have gotten a person into debt that it is their spending habit that should be blamed.
Calculating your expenses
When you calculate your expenses it involves much more than adding the numbers in different forms and shapes. In fact, calculating your monthly expenses should be more of an eye opening exercise than anything else for you.
You will get a lot of tools, templates, spreadsheets and software that will help you to craft a monthly budget but that may not help you to take control of your expenses. Your budget will simply act as a point of reference when you want to determine your cash inflow and outflow.
In order to determine your expenses you will have to follow a simple principle which is:
- Find out and consider everything that you spend on
- Compare this all using a personal spending calculator.
When you use such tools for the process you will be able to add up the amount that you spend on everything such as:
- Phone and cable bills
- Entertainments and
Once you have the total amount you should compare it with the national average. When you do so, you will be able to identify all those potential areas in wherein you can cut back your spending.
Prepare credit reports for loan offers
This specific evaluation and introspection will not only help you in your process to get your debts cleared and continue paying the monthly bills of your debt but will also help you after you have cleared off your debts in a lot of different ways.
- It will transform you from an extravagant person to a more reasonable one thereby contributing to your long term sustainability. This way you will be able to lead a life a happy life with or without debt.
- You will also be able to prepare your credit reports for loan offers. When you have a proper credit report and credit score in your hand you will be able to evaluate from the literature your current debt status and credit situation.
You are legally allowed to request for a free copy of your credit report and credit score from all the three credit bureaus that amass data on the credit behavior of a person namely Experian, Equifax, and TransUnion but one in a year from each.
Therefore, what is the best way to keep a check on your credit report for errors or just to know your score? Simple! Request for a copy of your credit score and report one from each after four months to have access to it all year round.
The FICO score
All these credit reports collected and prepared by the three credit agencies are taken together and used to calculate the FICO credit score. This is more like the GPA of the finance industry which when good affects the economy in a positive manner.
You can get your FICO Score at no cost pretty easily. Financial institutions, banks, credit card issuers, credit unions, and other money lenders may often provide you with a free credit score as well.
Ideally it is your FICO score that will eventually determine whether or not you will get the debt consolidation loan.
- Your credit score will influence the rate of interest.
- It will represent your creditworthiness.
Ideally, there are a few specific numbers that will indicate how good you are with your finance management, expenses control and whether you are eligible to get a debt consolidation loan. These are:
- Excellent score ranges between 750 and 850
- Good score ranges between 700 and 750
- Fair score ranges between 650 and 700
- Bad score ranges between 560 and 650
- Very Bad score ranges between 560 and 300 on the downward direction.
Choosing the right option
When you know your expenses and have it under control you will be able to know how much you can actually afford to take on as a loan. Such a knowledge and ability to control your finance will help you to choose the right option. There are a few good strategies to follow in this regards such as:
- Make sure that you have the ability to pay down the debts all on your own
- You must know how to do the math
- You must have a more flexible budget
- You must be willing to make the changes in your monthly spending
- You must be willing to make sacrifices to lessen your monthly expenses
- You must prioritize your debts to pay them off more quickly
- Make sure that you create a timeline to pay off your debts and
- Take care and better avoid taking on new loans or have access to new credit.
You must also be ready with proper documents and plans to talk to your creditors in case you are in a financial distress and simply ask for better rates according to your affordability.