Be Money Smart & Stop Drowning in Dumb Debts!

money smart


Ways to get money smart and avoid drowning in dumb debts!

Dumb debts are everywhere. Here are tips for you to get smart and avoid drowning in dumb debts!

Debt is a dangerous word. It has ruined many lives, forced people to go bankrupt and destroyed relationships.
But is it really that bad? Anything that’s dangerous doesn’t mean bad! What it can mean is that it’s hard to control and hard to tame!
So you need to decide, whether or not a debt is bad for you.
To keep it simple, any debt that takes money from you is bad or dumb, and those that open up a source of income to you is good and smart!
First, you need to differentiate between what is a good debt and what is a bad debt! If you can’t do this, you will never find out the way to get smart and avoid drowning in dumb debts.

So, what are smart debts and what are dumb debts?

1. Good or smart debts:
 Any debt that gives you a chance to earn dollars or promises to give back profit over time is considered to be smart or good.

It’s just another term for investments. It could be loaned for real estates or for future prospects such as educational loans.

Examples include:
 Mortgage loan, buying a rental property, car loan (if you give it out on rent), student loans or sometimes taking out a home equity loan to clear other debts.

2. Bad or dumb debts:

Such debts can never give you a good cash value in return. These debts will only drain out money from you, and with their hiked interest charges, will make it difficult for you to pay them off!

Examples include: Credit cards, payday loans, car loans (value of cars decrease over time), or any debt that you have incurred and feels like a burden!

This topic is not concerned with good debts and how you can utilize good debts to increase your property and wealth.

Instead, we will discuss the ways to get money smart and avoid drowning in dumb debt!

1. Understand needs and wants:

This is the first step you need to take. You should be able to sort out your needs and wants. No one can help you with this part.

The best way to find your needs are the items without which you can’t live. These include food, utility bills, your mortgage, and so on.

Your wants, on the other hand, could be a 3-storeyed refrigerator, a professional cosmetics kit from Chanel, a Macbook, buying a Nike Air Jordan, or even stuffing your wardrobe with denim every alternate month!

Check out Budget Planning Part 1

2. Maintain a proper budget that suits your income:

If you have two breadwinners in the family, say both you and your partner, then you can divide the expenses equally and plan a budget accordingly.Again, if you are the only source of income for your family, then your budgeting will be a bit different.

But irrespective of being the single breadwinner or both of you working, you can follow the 50-20-30 budget, where every month, on your payday, you set aside 50% of your salary for necessary expenses. After which you keep 20% for your savings and the remaining 30% for your wants and luxury expenses. You can also use this 30% of your salary for making extra payments toward debts or liabilities!

You can even try a zero-based budgeting if you have a variable income. Here you will need a year’s time in hand to plan this budget. So, figure out your approximate income in this year along with your total expenses for this year.

Now, plan a budget for the coming year, where you prioritize your expenses and savings, and try to assign a purpose to every dollar you earn!

3. After budgets and money habits it’s time to expand savings:

A rich and wise man will always save more than he spends. You should be wondering how is that possible? In the present days, nearly the whole salary goes towards expenses with little or no savings in hand! Then there are some people, who even after getting a decent salary, are forced to take out payday loans and max out their credit cards!Here is some advice to help you save more on household bills and punch the extra to savings!

By expanding savings, it doesn’t mean you are opening several bank accounts and getting confused in which one to deposit your money first.

It’s all about smart thinking, smart investing, and using smart debts to your advantage!

* I would suggest you invest in an employer-sponsored retirement plan.

* You can also open two savings accounts, one for an emergency fund and the other for future savings that might come of use sometime later.

* Also, if you have enough cash to experiment with, then consult a financial expert and try investing in stocks, bonds or real estates!

Here are some more useful tips to help you avoid drowning in dumb debts!

  • Try to use cash for your purchases instead of using credit cards. This way you will be able to track your expenses and avoid dumb credit card debts!

If you are worried about your credit card situation and think your credit cards are becoming a menace, then take precautionary measures from now on to avoid future harassment!

  • Always try to achieve a good credit score. With a good score, you will be having better chances of getting good credit limit. You might also get low-interest rates on your loans! FICO has put down a few guidelines to help you achieve a good credit score!

However, if you are already covered in huge debts, you can look for professional help such as enrolling in a debt management plan or a settlement program to get rid of your existing debts. But, once you solve your debt problems, make sure you don’t fall into that trap again!
So that was all.

In the end, all I want to say is that, not all debts are harmful. You need to be wise enough to choose smart debts.

My rule of the thumb: If I have limited income and not enough money to play with, I kinda stay away from debts overall, be it smart or dumb!

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0 Debt is a dangerous word. It has ruined many lives, forced people to go bankrupt and destroyed relationships.

About Misty Eilar

I am a happily married, work at home mom and Blogger. I love being with my family. I have a toddler girl and another one on the way. I love working with clients as well as writing for my own blog. I am an avid reader, couponer, and deal shopper. (Don't worry I don't overflow my house.) I do have an A.S. Degree in Special Education. It helps me teach my littles some education before they get to school.

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