Improve Your Financial Health by Managing Debts and Expenses
February 23, 2023
February 23, 2023
Limiting the amount of money you owe to creditors is key to maintaining financial health, but it is equally important to understand how to manage your debts effectively to prevent unnecessary fees and other penalties.
Paying down debt is one strategy to improve your credit score, which can provide more flexibility and favorable terms for future purchases — for instance, if you plan to buy a home in the future, a higher credit score may lead to a lower interest rate on your mortgage.
It is a good practice to pay off all debts as soon as you are able. However, there are certain circumstances that may require you to prioritize certain debts as more urgent than others.
Debts that accrue interest at higher rates only become more expensive over time. The sooner you can pay down your balance in high-interest accounts, the better.
High-interest debts can include:
In addition to limiting the amount of interest you will pay, making regular on-time payments to your creditors will have a positive impact on your credit score.
Failure to pay certain high-priority debts and expenses can have serious consequences that range from financial penalties to jail time. These items should be addressed as soon as possible to avoid further negative effects.
Examples of high-priority debts and expenses include:
Although they may be less immediate, there are other debts and expenses that can become a high priority if you miss payments for an extended period. These include:
For more information about managing your finances, learning debt reduction strategies and preparing for homeownership, visit CreditSmart® Essentials by Freddie Mac, a flexible, customizable and free online course — also available in Spanish.
Sign up to receive resources, tools and tips about buying, owning, refinancing, selling and renting a home in your inbox.