Tip 6: Carefully Track All Your Debts

Debt is a serious issue and you need to make sure that you treat it that way. Unfortunately it is so easy to get credit these days that many people really don't treat it with the seriousness that is required. The result is a lot of people who run up debt without even realizing how much they have. It is important to track your debts so that you know where you stand.

It is really quite disturbing how many people there are who really have no idea how much money they owe. Many people who think that they are in good shape financially are actually on the verge of disaster because they have grossly underestimated their debts. You have to know exactly how much you owe in order to make sure that you factor it into your budget. Saving money is of no value if your debts are growing faster than your savings. Since the interest rate on debt is usually higher than the return that you get on your investments the amount that you owe will grow at a faster rate than your savings. If you don't keep your debt under control you are actually losing ground.

The biggest issue with debt is credit cards, most people really don't know how much they owe. The problem is that the credit card company only requires you to pay back a small percentage of what you owe each month. This is different from things like your mortgage where you have to pay back the same amount each month. The small amount the credit card company requires you to pay gives the impression that you owe less than you do. Of course they do this because it keeps you in debt longer and increases the amount that you owe.

The other problem with credit card debt is that because of the high interest rates especially when combined with the low minimum payment the amount that you owe can increase really quickly. Usually this happens without you realizing it. This is a big part of why people get into so much trouble with credit card debt. The interest raises the amount that they owe to an amount that is far higher than they had expected.

Of course credit card debt is just one form of debt, there are plenty of others. You are going to want to look at the total amount that you owe and how fast it is changing. Ideally it should be decreasing and the faster the better. If the amount of debt you have is increasing then you are headed for trouble. There are actually quite a few other reasons that you would want to make sure that you keep track of your debt. One of the biggest is that the amount of debt that you have will affect your credit rating. Too much debt will really hurt it and this will make it harder and more expensive to borrow money in the future.