Reducing your debt does not mean the problem is over. Debt reduction without a constituted management plan may create a permanent risk in your financial security, as stated by Eleanor Blayney, CFP, a Consumer Advocate of the Certified Financial Planner Board of Standards. Blayney encourages American families to have a more thoughtful approach to debt rather than speeding up the process and suffering lifelong adversity after. Blayney stresses the significance of building a debt management plan with the help of a CFP expert. This way, you can make sure that someone could craft a well-organized plan on your behalf in order to recover your revenue. An expert can also help you come up with a careful and accurate resolution to manage your debt.
What is a Good Debt Management Plan?
The general impression of debt is undeniably negative. Americans have long been facing the problem of debt mismanagement. The key is definitely not to get rid of it immediately. In fact, rushing things will only make the situation worse. An adept debt management plan is an effective way to escape from the jeopardy. The process needs to be taken one step at a time, making sure that the approach fits your financial circumstances in every way. Blayney highly recommends a smart and professional plan to manage your debt considering the following elements:
- Assets and Liabilities
This point talks specifically about the length or duration to consider when financing. It seems like an easy option to finance long-term assets such as homes with short-term loans like credit cards. There are pitfalls, however, for doing so. Things are not much different the other way either. By taking on long-term liabilities to purchase short-term assets, you put yourself at risk that what you’ve purchased won’t last that long before the loan term even ends.
- Betting with the Interest Rates
Obtaining a loan with unstable interest rates, like a margin loan, will put you at risk if a time comes when the rates become too steep. A CFP expert can help analyze your situation and will give you advice on dealing with the depression of your properties.
- Assessment of your Priorities
Which should come first in the list? Are you thinking that eliminating your debt immediately will save the situation? You need to assess your priorities on which should come first and anticipate the circumstances that may come up on both short- and long-term priorities.
- Taking into Consideration: Discretionary and Non-Discretionary Spending
Rather than servicing your debt expenses, it is recommended that debt be eliminated in situations when it becomes a non-discretionary expense. Referring specifically to retirees, when the accountability becomes greater than your controlled expenses, you can’t avoid taking money from your investments even though it is highly discouraged. This is one example of a situation where debt needs to be discarded.
A good strategy when your assets and liabilities do not correspond with each other in terms of duration is to consider liquidity in cash form. This is a way to play it safe, especially when you’re planning to refinance your mortgage, for example, with a rate that is favorable for you. Most importantly, you don’t have to worry about your outstanding balance ballooning.
An ideal debt management plan should completely reflect your financial condition in every way. A debt management plan should come up with the best techniques that will be flexible enough to adjust to any unexpected situation. CFP professionals in this field are the ones you should seek help from in order to fix your financial dilemma.
Source: Getting Smart About Your Debt