Debt Challenges

Consumers borrow money to afford important purchases like homes and vehicles and some choose to borrow simply out of convenience. Taking on debt can be necessary to achieve important goals like getting an education or becoming a home owner, but borrowing poses a variety of financial challenges that can impact personal finances.

Improving Your Credit Score

Your credit score is a number based on your credit history that lenders use to decide how risky you are as a borrower. Your credit score can also affect the interest rates you get on debt; higher credit scores will typically increase your chances of being approved for loans and credit, and can result in lower interest rates. Maintaining and importing your credit score is one of the main challenges of debt management. Paying your debts on time each month and maintaining a low total amount of debt tends to help improve credit scores.

Controlling Spending

For many debtors, the necessity of controlling spending is one of the most challenging parts of being in debt. The more debt you have, the greater the proportion of your income you must devote toward paying off your debts. It can be tempting to spend extra cash rather than save it to pay bills and credit cards making it easy to spend money and increase debt even if you don't have cash on hand. Over spending can lead to burdensome levels of debt that may be difficult to pay off.

Unexpected Events

Unexpected life events can lead to debt challenges. For instance, you might take on a home mortgage with the expectation of paying it off with income from your current job, but if you your company lays you off you might suddenly find yourself unable to pay. An unexpected illness or injury can result in a large medical bill that you did not factor into your personal finances. You may be forced to make financial sacrifices to overcome such unexpected events if they occur.

Setting Financial Priorities

Another challenge of managing debt is setting sound financial priorities. High interest rate credit card debt tends to erode wealth faster than you can gain it by saving or investing, so it generally makes financial sense to pay off credit card debt as quickly as possible with extra cash. The U.S. Federal Trade Commission states that credit counselors can help educate consumers create a financial plan to pay back debts efficiently.