Income and expenses must be
controlled in such a way that the
expenses never exceed the income.
Budgeting allows a person to allocate
portions of their income to cover their
expenses while considering the bigger
picture.
Expenses can be divided into three
general groups: necessary living
expenses, luxury expenses, and loan
payments. Loan payments are not an
expense in the ordinary sense because
they represent money already spent that
has to be repaid, usually at an
additional cost of interest payments.
For those with limited income, loans
may seem desirable to make purchases
that the income cannot afford. But
these loans grow with interest and must
be paid in a timely manner. If they are
not, creditors may take your home, your
car, other possessions, and invariably
lower your credit rating, which may
hinder obtaining future loans.
This is where debt management is
important. If done properly, debt will
not exceed a person's budget. Avoiding
overspending is the first goal,
followed by building savings to handle
medical or other personal emergencies.
Once a budget is created that
identifies and allocates income toward
basic living expenses, debt must be
carefully approached. To avoid interest
payments and possible overdue fines,
all outstanding debts should be paid in
full every month. If this is not
possible, pay off the debt with the
highest interest rate first, then go
after the next highest interest rate,
etc.
If debt consolidation or refinancing is
an option, use it wisely. Pay off the
debts without creating new debts
elsewhere. There are credit counseling
services and financial institutions
that are available to help structure
personal budgets. You might attempt to
contact your creditors and request an
official payment postponement or more
favorable repayment options, even if
just on a temporary basis. If you do
not wish to try it yourself, some
services provide such debt negotiation
for a fee. Voluntary forfeiture of
property or filing for bankruptcy
should only be used as a last resort,
as these actions will adversely affect
your credit rating for several
