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Principles Of Debt Management

Develop a debt strategy
Place your needs and desires into categories: necessities and luxuries and then into things with long-term and short-term or momentary value. Prioritize them based on necessities and long-term and lasting value. Borrowing for college tuition is a good use of debt while charging another extravagant vacation on your credit card is probably not.

Credit cards
The benefits and conveniences of credit cards are wonderful. All too often, however, credit card use can get out of hand. There is no getting around the fact that what you borrow you will eventually have to repay—often with interest. The best and most costs effective use of your credit card is to pay your entire balance each month to avoid finance charges. In addition, making payments promptly avoids late fees.

Choose a credit card that offers the right combination of fees, rates and benefits. If you pay every credit card bill in full each month, it may be OK to have a card that has a higher interest rate but has no annual fee or offers rewards such airline miles or cash back. If you carry over balances and pay finance charges, the interest rate should be your greatest concern.

If credit cards provide an irresistible temptation, use checks or a debit card, or pay the old fashion way—with cash.

For a home purchase, select the type of mortgage that matches your spending behavior, financial situation and anticipated plans. If you expect to sell your house soon, you may want an Adjustable Rate Mortgage (ARM) with a lower initial interest rate. If you plan on staying in the home for the long term or can't afford any increase in payments if interest rates rise, consider a long-term, fixed-rate mortgage.

With the recent fall in interest rates, you may want to consider refinancing your mortgage to secure a lower rate or switching to a shorter-term mortgage. Depending on your remaining balance, you may be able to keep your monthly payments about the same while shortening the length of your mortgage from 30 to 15 years.

Examine the rates
Eliminate any high-cost borrowing you may be engaged in. Can you convert a high interest rate debt to one with lower rates? If you are paying high interest rates on credit card balances, find a card with a lower rate. If you have equity in your home, consider a home equity loan to consolidate all your debts at a lower rate.

Getting help
If you need help, don’t be afraid to ask. At the same time, you can help yourself by refraining from incurring more debt. Stop using credit cards that are the source of your debt. Contact your creditors immediately to work out a payment schedule. Explain your situation and express your sincere desire to pay what you owe. They may be able to help. Don’t wait for them to call you.

Don't write checks without sufficient funds. You may be charged a fee for the bad check.

There are several non-profit organizations, such as Consumer Credit Counseling, that provide free financial help. They can create a plan to help you work your way out of debt. Attend a free Bank of Hawaii Smart Money Seminar that covers information on a variety of financial topics such as “The ABCs of Credit.” Finally, if it sounds too good to be true, it usually is.